Analysis of Sham Contracting in Human Resource Management Law

This report examines the legal implications of sham contracting within the framework of the Fair Work Act 2009. It delves into the definition of sham contracting, where employers misrepresent employees as independent contractors to avoid obligations. The report analyzes relevant issues, including vicarious liability, and explores the recent developments. It highlights the significance of the Fair Work Act 2009, particularly section 357, which prohibits such practices. The report also discusses the implications of sham contracting in various business sectors, including online food delivery services like Foodora, and examines relevant court cases such as Fair Work Ombudsman v Quest South Perth holdings Pty Ltd (2015) and Sweeney v Boylan, which illustrate the complexities of employee versus contractor classifications. Furthermore, the report covers the importance of understanding the legal framework, including employer duties, the role of the Fair Entitlements Guarantee scheme (FEG), and the consequences of non-compliance, including penalties. The report also touches on the use of labor hire and contracting entities, the role of the Fair Work Commission in dispute resolution, and the significance of restraints of trade and developments after the prohibition of sham contracting.

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HUMAN RESOURCE MANAGEMENT LAW
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Introduction
Sham Contracting is identified as an unlawful method of employment under section
357 of the Fair Work Act 2009. Under such an act, the employer is likely to establish a fake
representation of the worker as an autonomous contractor. Moreover, any employer which
tends to make such falsification of the employment association is liable for penalties as per
the Act (Van der Waarden, 2014). As per reports, fines for sham contracting takes into
account agreements made against the company and monetary fines which can rise up to
around $54,000.00 for each violation. In the view of Morgeson et al., (2019), sham or fake
contracting is usually established by the business organization to generate their individual
benefit as it permits an employer in evading any type of accountability for an employee. Such
fake contracting also helps companies to avoid payment of any entitlements of an employee
associated with retirement, departure or monthly remuneration. Furthermore, any kind of
sham contracting performed by employers chiefly with an aim of circumventing their
employer obligations or due to an employer’s irresponsibility of considering whether or not
the individual served as an employee of the organisation (Berman et al., 2019). The following
paper will analyse the relevant issues related to sham or fake contracting by the Fair Work
Act 2009. In addition to this, it will focus on the recent developments witnessed in this area.
Discussion
Sham contracting fortifications tend to extend towards the triangular measures in
which employees are supposedly e involved as part of independent workers through a third
party such as labour recruitment provider. The High court in fair work Ombudsman versus
Quest South Perth holdings Pty Ltd (2015) has made clear claims that the proscription in

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s357(1) of the Fair Act 2009 is applicable to irrespective of who is the other party to the
agreement (Kelly, 2015).
General Employee Entitlements and Redundancy Scheme (GEERS) has been replaced
with the Fair Entitlements Guarantee scheme (FEG). It is important to note that the major
issue with GEERS was the lack of legislative basis for the scheme. GEERS functioned only
as an administrative planning functioned by the Department of Education, Employment and
Workplace (Willis & Mills, 2017). As a result, inevitability and confidence in the system
was never accessible as there always remained the opportunity of independent amendment or
elimination of the scheme at the notion of the administration in control. Nevertheless, this
issue was settled on the enactment of the Fair Entitlement Guarantee Act 2012 (Cth) (Act),
which recognized the FEG system. According to this Act, organisations cannot depend on
third-party enterprises in order to circumvent accountability for making deceptive images
regarding the actual nature of agreements made with the workforce. Reports have revealed a
recent example of probable fake or Sham contracting which has been performed by the
renowned online food delivery business named Foodora, which has its wide ranging business
operations in countries like Australia and Singapore (Webster, 2017). The online food
delivery businesses in recent times are increasingly expanding across the world. Such an
expansion has been providing customers with not only racket but highly efficient food
experiences. However the idea of constituting all types of food items delivered to people as
per their convenience and location is definitely seen as an innovative and exceptional
concept, thus resulting in great success and attainment of high revenues (Anderson, 2015).
On the other hand, the non-traditional method of employment has led this type of
rapidly growing organisations violate legal policies and regulations. As a result, they are
engaged into sham contracting. In the opinion of Ananian-Welsh and Gover (2015), if any
company shows lack of diligence, they can be answerable as well as responsible for severe

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consequences and penalties. As a result, it is highly imperative that an employer puts up with
their employment commitments and liabilities.
Relevant issues
According to reports, around 46% of HR professionals are of the opinion that
provisional employees will comprise of nearly 20% of the workforce by 2020. In countries
like China there has been witnessed a seismic shift gradually proceeding. Traditional
'recruitment' is gradually weakening as employees show higher levels of inclination towards
flexibility, greater level of freedom and opportunities to pursue ground-breaking
entrepreneurial prospects (Allain, 2015). The institution of illegal pretended contracting
provisions shows accurate seriousness. The relevant issues related to sham contracting can be
truly understood from its characteristics. As a result, it leaves a company with imbalanced
benefit as compared to its competitors where buy the company's operational costs are
illegitimately abridged thus making it more competitive in opposition to its contenders and
offering with elevated amount of company returns. Company has certain level of indirect
liability towards its employees and not for the employees who are self-regulating or
independent contractors for engaged with the company under other contracts (Anderson,
Brodie & Riley, 2017). Accountability of employers for the actions or exclusions of workers
during the course of service acting as a subsidiary to the employment is also a kind of
vicarious liability to the employment. Moreover, organisation responsibility is irrespective of
whether the employee has been in compliance with the organisational regulations and policies
or in certain cases where there is a close association between the employment and the activity
which has led to forfeiture.
Babu and Baig (2016) have cited an important example of the case of Sweeney v
Boylan. According to reports, Boylan maintained as well as used to provide services for
cooling and refrigeration units in in several retail outlets. However once the company

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manufactured a defective door which led the company to involve an independent contractor
for attending the client and repair the damaged unit. However, after the service of the
independent contractor, when the client opened the door of the refrigeration unit it afterwards
fell on her and injured her severely, this led the company involved into vicariously
answerable for the actions of the independent contractor. Subsequently, the court gathered
information that Boylan had not be vicariously accountable for the actions of the independent
worker as the facts did not a support an evidence that the independent worker was part of the
full-time employee position (Hills, 2015).
Contracting in the Business Sector
Contracting is a well-established characteristic of the business industry sectors. Thus,
there is an increasing demand for highly focused tradespersons executing their operations
independently and delivering their own labour as well as engaged to offer a defined service
and outcome. Even though, the idea of independent contracting is not newly established, such
a form of work arrangement is no longer restricted to a number of highly specialised roles or
businesses. As per reports, currently there can be witnessed a concept of contracting which
has gradually expanded into other relatively lower-skilled as well as lower-remunerated
sectors, in which the structure tends to involve little more in comparison to the supply of a
employees’ time as well as labour (Hedwards et al., 2017). However, a typical misconception
is still there regarding if an employee has business registration number or issues bills for
services completed and is involved in an independent worker agreement. Under these
circumstances, these workers can be referred to as lawfully engaged contractor. Furthermore,
courts are still providing clear declarations confirming the parties acknowledge the
connection as that of chief or contractor (McMahon & Hartmann, 2019).
The Fair Work Act 2009 (Cth) strictly proscribes “sham” agreement. Particularly,
companies are forbidden from deliberately or irresponsibly falsifying a service affiliation as a

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contracting liaison, from discharging an employee to involve as an independent contractor
and from making any declaration that the employer discerns is false in order to convince or
an existing or previous worker to enter into an agreement for services. In such cases, the
employers are needed to deny tax payments for their workers. On the other hand, independent
contractors give taxation charges directly to the ATO as a business (Rawling, 2015). In
addition to this, the Fair Work Act (s326) also offers the opportunity that specific terms of a
current accolade or an enterprise agreement in addition to an agreement of service in terms of
any deductions, have no effect, comprising of a deduction of compensation that is directly or
indirectly for the profit of the organization.
Terms and regulations which are illegal or unacceptable involves offering
authorization to any company to deduct a sum that is payable to a worker in terms of
performance of the service given, or requiring the employee to make a compensation to a
company or other organizational entity from an employee’s earnings as well as advancing the
sum to a employee recruitment enterprise (Webster, 2017). In addition to this, the
prohibitions include actions whereby the employee is considered by the company to have
made unsatisfactory work, with the employer consequently determining to deduct the salary
of the worker in the form of ‘compensation’; or by imposing a penalization on the worker for
unpunctuality or delay.
Restraints of business in worker contracts
Numerous companies use general restraints or limitations that fail to explain the
explicit employer-employee or employer-contractor association which requires to be
protected. For example, the case of Informax International Pty Ltd v Clarius Group
Limited [2012] FCAFC 165 shed lights on the significance of altering a limitation in order to
align with the circumstances. According to Anderson (2015), a limitation of trade is referred
to as a predetermined clause that permits a business to limit a worker’s upcoming

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employment choices. Moreover, restraints also known as “non-competes” are designed in
order to protect an employer’s commercial welfares and benefits by averting a worker from
utilising confidential information or services attained in their service to exceed the
competitor. The case of Informax v Clarius is considered as a good example of ways in which
companies must try and eliminate the role of contractor which bonds the contractual
employee and the organization (Ananian-Welsh & Gover, 2015). The case further highlights
to the fact that when a staffing company fails to draft a reasonable and measured restriction
clause, the Court will only apply it for a limited period.
Developments after Prohibition of Sham Contracting
Under the Fair Work Act 2009 (Cth.) there are 10 pay and leave criterions which are
applicable for the national system employees that is under the National Employment
Standards. However, the employees who do not fall under the National Employment
Standards remain within the state system criterions. For example, the minimum Conditions of
Employment Act 1993 (WA) has established the pay and leave standards for WA employees
who do not fall under the national system (Willis & Mills, 2017). With the prohibition of
Sham contracting, conciliation is an approach of connecting parties in disagreement to
agreement by facilitation as well as actively partaking by making commendations, proposing
alternatives for resolution such as against unfair dismissal prerogatives. In addition to this,
mediation is another approach which takes into account FWC supporting dispute resolution
by expediting perseverance by means of procedural support, recognizing concerns as well as
putting on established rules. This approach draws relevance to the conciliation, even though
FWC has superior role in procedural enablement (Babu & Baig, 2016).
Another development recognized with the prohibition of sham contracting is
arbitration. As per Hills (2015), the arbitration is known as an authorized adjudication of a
dispute amid specific parties resulting in an agreement binding the parties. Furthermore, order

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or declaration relates to binding that is cases in which FWC has been chosen as a pursuant to
an initiate agreement to bring resolution for the disputes. On the other hand, there are also
compensations, awards and FWC. An award is referred to set of minimum standards of terms
as well as conditions of employment in lieu of workers in a business or group of
employments. On the other hand, awards are relevant to comparable potency to legislation as
well as tend to impose obligations mostly on employers (Hedwards et al., 2017). However, an
award grants privileges to all employees employed by the respondent companies.
Conclusion
To conclude, the Fair Work Act 2009 (Cth) strictly proscribes “sham” agreement.
Particularly, companies are forbidden from deliberately or irresponsibly falsifying a service
association. It has been found that prohibitions include actions whereby the employee is
considered by the company to have made unsatisfactory work, with the employer
consequently determining to subtract the salary of the worker in the form of ‘compensation’;
or by imposing a penalization on the worker for unpunctuality or delay. It also offers the
opportunity that specific term of a present award or an enterprise agreement in addition to an
agreement of service in terms of any deductions.

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