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Misrepresenting employment as independent contracting arrangement
- A person (the employer) that employs, or proposes to employ, an individual must not represent to the individual that the contract of employment under which the individual is, or would be, employed by the employer is a contract for services under which the individual performs, or would perform, work as an independent contractor.
- Subsection (1) does not apply if the employer proves that, when the representation was made, the employer:
- did not know; and
- was not reckless as to whether;
the contract was a contract of employment rather than a contract for services.
What is the protection?
An employer cannot pretend that they are offering a person a job as an independent contractor when the position actually involves entering into an employment contract.
An employer must not tell a person whom the employer proposes to engage as an employee that the person needs to get an ABN and register themselves as their own business before they start work because they will be an independent contractor.
Are there exceptions?
The provision will not apply if the employer can prove that they did not know, and were not reckless, as to whether the engagement was not meant to be as an independent contractor but as an employee.
A contract for services is a contract between a person (the principal) and an independent contractor which creates a commercial arrangement where the independent contractor agrees to provide a specified service to the principal—no employment relationship is created.
Employment misrepresented as independent contracting arrangement
Fair Work Ombudsman v Happy Cabby Pty Ltd
Fair Work Ombudsman v Happy Cabby Pty Ltd  FCCA 397 (26 July 2013).
Seven people engaged by a company as bus drivers were told by the company that they were engaged as independent contractors.
This was admitted to constitute sham contracting because the seven people were employees, not independent contractors. The company also underpaid award rates by $26,082.22 and failed to keep proper employment records.
The respondent was ordered to pay the Commonwealth $252,120 (included 7 penalties of $18,480 each for 7 breaches of s.357(1)). The respondent’s sole director and company secretary was ordered to pay the Commonwealth $47,784 (included 7 penalties of $3,696 each for 7 breaches of s.357(1)).
Fair Work Ombudsman v Metro Northern Enterprise Pty Ltd
Fair Work Ombudsman v Metro Northern Enterprise Pty Ltd  FCCA 216 (7 May 2013);  FCCA 1323 (15 August 2013).
Persons engaged by a kitchenware products company to engage in promotional and sales activities were told that they would perform the work as independent contractors and would be paid on commission.
The Court held that they were in fact employees, and that the company had misrepresented their status in breach of s.357(1) of the Fair Work Act. Barnes J noted that the company’s director and controlling mind was aware of the distinction between employees and independent contractors and the risks involved in misrepresenting the truth of the relationships (given the fact that he had obtained legal advice on the topic in the past), and despite these risks he had been ‘careless or incautious’ in his actions. The company did not succeed in making out the defence that it did not know and was not reckless as to whether the persons were engaged under a contract of employment rather than a contract for services. The employees as a consequence of the mischaracterisation of their status were also underpaid.
The respondent was ordered to pay the Commonwealth $161,700 (included 4 penalties of $23,100 each for 4 breaches of s.357(1)).
Fair Work Ombudsman v Bedington
Fair Work Ombudsman v Bedington  FMCA 1133 (29 November 2012).
The respondent was the sole director and responsible for the day to day management, direction and control of a business. It was alleged that the respondent misrepresented to certain employees that they were engaged under a contract for services when in fact they were each engaged under a contract of employment.
It was alleged, and admitted, that as a consequence each of the relevant employees was not paid annual leave or annual leave entitlements.
The respondent was ordered to pay the relevant employees a total of $17,820 (included 7 penalties of $1,980 each for 7 breaches of s.357(1)).
The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.9)
The Court found the respondent had engaged in sham contracting with 10 workers at different times between 2007 and 2010. The respondent deprived the workers of minimum entitlements when it misrepresented their employment relationship.
The Court found there had been 139 contraventions in total of the Workplace Relations Act and the Fair Work Act and a number of applicable industrial instruments.
Other breaches occurred when it failed to meet minimum statutory entitlements for annual leave, superannuation, travel allowance, meal allowance, overtime, weekend penalty rates, redundancy and crib breaks.
When looking at whether the respondent had exhibited contrition, taken corrective action, and co-operated with investigating authorities, the Court found that the respondent had shown ‘a remarkable lack of insight into its behaviour and its impact’.
The respondent was ordered to pay the Commonwealth $313,500 (included 10 penalties of $23,100 each for 10 breaches of s.357(1)).
Employment NOT misrepresented as independent contracting arrangement
Austin v Honeywell Ltd
Austin v Honeywell Ltd  FCCA 6762 (28 June 2015).
There was no evidence to substantiate the applicant’s assertions that the respondent was her employer such as a letter of appointment or payslips. However the applicant’s invoices to the respondent were in evidence. They showed that the applicant provided her ABN, described herself as a consultant and charged GST.
Consequently, the Court did not consider that the respondent was the applicant’s employer for the purposes of s.357 of the Fair Work Act. It was accepted that there were some features of the applicant’s engagement with the respondent that were consistent with both casual employment and an independent contractor relationship, such as no sick leave or annual leave.
However, overall, it was considered that the circumstances were more consistent with an independent contractor relationship. Consequently, the Court did not consider that there had been a misrepresentation about the nature of the relationship between the respondent and the applicant.