In May this year, the Federal Circuit Court imposed a combined penalty of over $300,000 against Linkhill Pty Ltd, a company associated with the interests of Gary Morgan, the chairman of Roy Morgan Research in relation to the sham contracting of 10 workers in the construction industry between the period from 2007 to 2010.The court examined the totality of the working relationship between each of the 10 workers and the company.
Key factors taken into consideration by the court in concluding the workers were employees were:
- Personal Services – each worker was required to perform the services personally. i.e. none subcontracted or employed employees; none were required or expected to find a replacement to perform the work whenever they were unable to attend work
- Prescribed Days and Hours – the workers were required to work minimum 40 hours a week between set hours, subject to a few exceptions. There was no ability to refuse job tasks and they were required to notify and/or obtain approval. Some workers worked on weekends in excess of the standard hours as requested from time to time without extra pay. Breaks taken during the course of each work day were not determined by the workers, but as scheduled by the company
- Were Workers Truly Operating Own Business – whilst each worker had an ABN, the work performed was not as part of their own business, rather they worked as part of the company’s business. Most tools and equipment were supplied by the company. All workers worked exclusively for the company with some exceptions, but only where notice was obtained and approval was given by the company for the individual to perform work elsewhere. None of the workers were liable for defects in their work or re-do any work without pay. None of the workers were able to create goodwill or a saleable asset, or make a profit from the work they performed
- Control – the workers performed work as directed and supervised by representatives of the company. Occasionally some workers performed work at Gary Morgan’s house and houses of his friends and family as and when required
- Payment – payment was made on hourly basis, not for results
- Right to Dismiss – workers were threatened with dismissals on occasions, which indicated the company regarded itself as having a right to dismiss and the company had rights to take “disciplinary measures” for breach of confidentiality
- Workers Treated as Part of Organisation – workers purchased materials on the account of the company and certain workers used the company’s credit card and were given business cards as representatives of the company. All workers were able to, and some did, take part in training provided for by the company.
The court also examined indicators that supported the argument that the workers were independent contractors. Three factors were identified:
- ABN used by each worker – although a factor, the court gave little weight to it
- Written contract – whilst the parties may have intended for the relationship to be one of independent contractor on paper, the court will look at the true nature of the working relationship
- Invoices – although workers were paid in accordance with invoices issued by them, the court considered this at best a neutral factor. In this case, the company provided template invoices for workers to issue. The invoicing arrangements were viewed by the court as an “emanation of the business arrangements established and imposed by Linkhill and are consistent with the finding that the workers were working in Linkhill’s business rather than their own.”
In examining the totality of the relationship, the court concluded the system and arrangements clearly established that each of the relationships were in the nature of employment. As part of its conclusion, the court said:
“Linkhill reserved to itself control over where, when and to what ends that labour was to be directed and it directed and supervised the performance of the work of each worker on a daily basis. In providing their labour in this way, none of the workers could be said as a matter of fact to have been conducting their own business but plainly did so in the furtherance of and as part of Linkhill’s business. The fact that the workers were required to supply an ABN and did not have taxation deducted from the payments they received from Linkhill and were paid pursuant to invoicing arrangements imposed by Linkhill does not alter these fundamental features of their engagement.”
In addition to the penalties imposed, the Fair Work Building and Construction also successfully argued that workers were deprived of almost $180,000 in unpaid meal allowances, superannuation contributions, overtime rates, annual leave entitlements, personal leave entitlements and the like.
This decision is currently under appeal.
If you would like advice about the use of contractors, or any other employment issues, send an email enquiry to [email protected] or phone us on 02 8006 0830 and we will organise a time for a confidential discussion.
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