Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45

Ms Best and Ms Roden were employed as housekeepers by Quest South Perth Holdings Pty Ltd (Quest) in their business of providing serviced accommodation. Quest later entered into a labour hire agreement (the Agreement) with Contracting Solutions Pty Ltd (Contracting Solutions) that purported to employ Ms Best and Ms Roden as independent contractors.

Following the Agreement both Ms Best and Ms Roden continued to perform precisely the same work in precisely the same manner as they had always done as housekeepers for Quest, however Quest represented to them that they were now independent contractors who were employed by Contracting Solutions.

The Fair Work Ombudsman brought a proceeding in the Federal Court claiming, among other things, pecuniary penalty orders against Quest for contraventions of s 357(1) of the Fair Work Act 2009 (Cth). Section 357 seeks to prevent an employer from misrepresenting an employment relationship as a contract for services with an independent contractor (often referred to as sham contracting)

Contravention of s 357

The previous, more constrained position, as applied by the Full Court of the Federal Court of Australia in this matter, was that to contravene s 357 an employer must mischaracterise the contract of employment that exists between the employer and the employee “as a contract for services between the employee and the employer.” This limited the application of the section to mischaracterisation of arrangements only between the employer and the employee.

Here, the mischaracterisation occurred between Quest, as a purported third party business, and the employees, thus arguably falling outside the scope of s 357.

The High Court of Australia (HCA) set aside the decision of the Full Court of the FCA and held that contravention of s 357 extends to cover connected entities and held that in this situation it operated to protect employees from sham contracting.

The HCA also held that Ms Best and Ms Roden were note independent contractors and that they remained employees of Quest under implied contracts of employment. HCA remitted determination of penalties to the FCA.

Key learnings from this decision

  • Third parties assisting former employers in contracts for services with purported independent contractors are now at risk of contravening the Fair Work Act 2009 (Cth);
  • Penalties can be imposed for breaches of the Fair Work Act 2009 (Cth). Penalties are currently AUD 54,000 for a body corporate and AUD10,800 for an individual per breach.