Many employers are (or should be) aware of the civil and criminal liability arising for an employer who seeks to employ a primary 457 visa holder without being an approved sponsor under the 457 visa scheme.

However, a recent ruling of the Fair Work Commission (FWC) also suggests the non-observance of the Migration Act1958 requirements will result in invalidity of the employment contract.

According to the FWC ruling (Smallwood v Ergo Asia Pty Ltd [2014] FWC 964) an employer who is not an approved sponsor under the 457 visa program cannot make a legally effective employment contract with a primary 457 visa holder.  In the Ergo Asia case, an employee holding the primary 457 visa holder purported to have her 457 visa sponsorship taken over by a company (labour hire company) who on-hired the services of the person to a client of the company (the host employer). The primary 457 visa holder signed an employment offer issued by the host employer. The host employer was not an approved Subclass 457 sponsor. The employee subsequently entered into a written employment agreement with the labour hire company.

When the host employer ceased to require the services of the primary 457 visa holder, the employee made an unfair dismissal claim against the host employer.  The host employer invited the FWC to dismiss the claim on the grounds no employment relationship had arisen between the employee and the host employer, and the true employer was the labour hire company.

The FWC concluded the host employer intended to have the employee work for it but it also knew it could not directly employ a primary 457 visa holder because it was not an approved 457 sponsor.  The FWC concluded that the employee was also aware of this.  On this basis the FWC ruled an employment relationship did not arise because of a lack of mutual intention to create a legal employment relationship.

Although the FWC did not need to decide the issue, it also observed that any employment contract made between the host employer and the employee would have been impliedly prohibited by the Migration Act and therefore invalid and unenforceable.  This observation was based on the principle of statutory illegality i.e. if legislation prohibits a contract being made then any attempt to make such a contract is legally ineffective.

The FWC noted that an object of the Migration Act is “to regulate, in the national interest, the coming into, and presence in, Australia of non-citizens [by providing] for visas permitting non-citizens to enter or remain in Australia … [to] be the only source of the right of non-citizens to so enter or remain.”

In this case the primary 457 visa holder breached Condition 8107 on her Subclass 457 visa, in working with an unauthorised employer who was not an approved 457 sponsor.  This leaves the primary Subclass 457 visa holder subject to having their 457 visa cancelled and further, to other penalties under the Migration Act.

This case makes clear that attempts by an approved 457 visa sponsor and employer of a primary 457 visa holder to transfer employment of the employee to another employer who is not an approved sponsor will be legally ineffective. Instead, the employment relationship and the obligation to comply with sponsorship obligations will remain with the approved 457 sponsor (being the original employer) including the obligation to ensure employment terms and conditions of employment provided to the employee are no less favourable than a domestic worker who performs equivalent work. Provisions in the employment contract with the purported new employer will be ineffective, such as post employment restraints, provisions protecting intellectual property and confidential information, and authorising lawful deductions to meet costs incurred by the new employer in relation to the new employment.

Primary 457 visa holders are required to comply with Condition 8107 which means they can only work with their approved 457 sponsor and in the nominated position, unless the Department of Immigration and Border Protection approves the new employer as a Subclass 457 visa sponsor and in respect of that primary 457 visa holder.

Otherwise, the approved 457 sponsor, the primary 457 visa holder and the purported new employer could be subject to significant penalties for breach of the Subclass 457 visa program.  Further, all employers are now subject to the Employer (Amendment) Sanctions Act which carries strict civil liability provisions where employers allow an overseas worker, to work in breach of their work rights or alternatively, can leave that employer subject to criminal sanctions, significant fines and in worse case scenarios, imprisonment.

Only persons who are lawfully in Australia, hold a valid visa and have the requisite work rights, are permitted to work. Primary 457 visa holders’ visas are granted subject to Condition 8107, which limits their right to work only with the approved 457 visa sponsor and in the approved nominated position.

Overseas workers as well as employers should take note of this Fair Work Commission ruling.