Yellow cleaning sign on wet floor

Federal Court condemns “shameless exploitation” of vulnerable workforce via sham contracting scheme

The recent decision in Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034 (26 August 2016) demonstrates that businesses will be prosecuted for breaching sham contracting provisions in the Fair Work Act.

In this case, it was denied by Grouped Property Services Pty Ltd (the employer) that they ever employed all of the 51 workers allegedly affected by the contraventions. GPS claimed that some of the workers “may have been employed by other entities” – National Contractors Pty Ltd – which supplied their labour to GPS and therefore the labour hire arrangements were genuine.

The bulk of the GPS business consisted of providing mostly services to other businesses which involved:

  • the “marshalling and direction of the labour” of the cleaners
  • the cleaners had little, if any, “latitude over their work”
  • work practices were imposed upon them and they had no control over the allocation, manner and hours of work and were not able to delegate work to others
  • they did not supply their own equipment or materials, have their own insurance or invoice for their services
  • they had no businesses of their own and did not intend to pursue their own business interests

However, “despite some clumsy attempts” to create a genuine labour hire relationship Justice Katzmann found that the “inherent character” in each of the 51 cases was one of employer and employee, not independent contractor and principal.

In this case, it was also found that the facts revealed “no independent relationship” between National Contractors and GPS and “in substance and reality” all the employees were employed by GPS:

  • National Contractors generated little or no income and operated at a loss
  • the source of all its income was money transferred by GPS
  • in almost all cases the employees applied for work with GPS and offers of employment were made by GPS
  • all payroll and human resources matters were handled by GPS
  • for the most part employees believed they were employed by GPS

A judgement is yet to be made in relation to this matter, with the Fair Work Ombudsman seeking $327,111.18 in compensation for GPS employees, plus additional penalties.

The Fair Work Ombudsman has taken strong action against businesses engaging in sham contracting arrangements.

If you’d like to know more about how to avoid issues like these, we’ve put together an information pack, titled Avoiding the Common Pitfalls of Contingent Employment, which you can download free.

It covers issues including sham contracting, the types of labour hire agreements common in Australia and what to look out for when using contract staff.

To get your copy, click here.