Lessons for employers in landmark sham contracting case

  • Sham contracting provisions prohibit an employer from representing a 'contract of employment' as a 'contract for services'.
  • Mandatory state-based labour hire licensing schemes to be introduced to crack down on rogue labour hire operators.
  • Labour hire firms, and those who use them, should keep abreast of legislative developments and begin putting in place a compliance and monitoring strategy.

Hand tearing up contract

A leading case concerning the scope and application of the sham contracting provisions of the Fair Work Act has concluded, following over five years of litigation in both the Federal Court and the High Court of Australia. The final binding determination in the matter — which was in respect of pecuniary penalties — was handed down on 8 June 2017.

Background

The case of Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd considered the effectiveness and legality of triangular contracting arrangements in the context of the sham contracting provisions of the Fair Work Act 2009 (the Act).

Quest South Perth Holdings Pty Ltd (Quest) owned and operated an apartment hotel complex in Western Australia. Quest had engaged a third party, Contracting Solutions Pty Ltd (Contracting Solutions), to convert two of its housekeeper employees into independent contractors. These 'independent contractors' were to be paid by Contracting Solutions for their labour, but would be supplied back to Quest for the purposes of performing the same work as they had done during the period of their employment.

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