The Federal Circuit Court of Australia (FCC) has imposed a record fine for a sham contracting claim brought by the workplace regulator Fair Work Ombudsman (FWO). The (FCC) held that the company, which operates an airport shuttle service, had underpaid seven drivers by misrepresenting their employment as independent contractors, in breach of s 357 of the Fair Work Act 2009 (Cth) (FW Act). The drivers were found to be employees rather than independent contractors because the company owned the drivers’ vehicles, the company had a high degree of control over their work and the company determined how much they would be paid. 

In finding that the company was the employer of the drivers, the FCC determined that the company had failed to meet the required Modern Award entitlements with the seven employees underpaid $26,000. The company was fined $238,920 while the sole director was fined $47,784, amounting to a record total fine of $286,704. 

The FWO commenced proceedings relying on evidence it had obtained about the company’s history with sham contracting including two ATO determinations, four workplace complaints and findings by the Administrative Appeals Tribunal. The FCC judge took this history into account, particularly the company’s disregard of the FWO’s letter of caution regarding its contracting practices. 

Fair Work Ombudsman v Happy Cabby Pty Ltd & Anor (2013) FCCA 397 

Lesson for Employers

This is a prime example of the consequences of incorrect classification of workers. While organisations may prefer to engage contractors, it is critical that the arrangement is truly one of independence and not a master/servant type relationship which is likely to be classified as employment. The significant fines imposed (including those imposed on individuals) act as a timely reminder of the importance of proper classification of workers.