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Employee misclassification results in record penalties

AREEA graduate employee relations consultant Sarah Helfer summarises a recent court decision to hand down record penalties against an airport shuttle company for misclassifying seven employees as contractors.

RECORD penalties have been issued to a company and its sole director after the Federal Circuit Court of Australia found both guilty of engaging in shame contracting employment arrangements.

The Facts

Happy Cabby, an airport shuttle service based in Newcastle, engaged seven taxi cab drivers as independent contractors rather than employees, resulting in the drivers being underpaid a total of $26,082.22 over an 11 month period.

In January 2011, the Fair Work Ombudsman (FWO) issued a warning letter to the company for the misclassification of employees, providing an opportunity to voluntarily rectify the issue and place the drivers under the Passenger Vehicle Transportation Award 2010. However, evidence showed that underpayment continued, resulting in action from the FWO.

The Decision

The FWO launched proceedings against the company and its sole director, Graeme Paff.

In a decision handed down in February 2013, the company was ordered to pay back the wages owed plus interest. The underpayments included failure to pay minimum hourly rates, casual loadings, overtime entitlements, weekend penalty rates and public holiday penalties against others.

In addition to misclassification of employees, the company also admitted to contraventions of s536 of the Act by not issuing any payslips to employees and failing to keep employment records.

The FWO then sought to incur high penalties against the company for sham contracting and record keeping contraventions, contending that “the contraventions of the Fair Work Act 2009 (the Act) were deliberate or at the very least wilful blindness”.

The Judge found the FWO’s penalties to be excessive, but decided to issue a record fine of $286,704 to the company and $47,784 to the sole director, referring to the company’s extensive history of employee misclassification as a leading reason for the decision.

Implications for Employers

Based on the company’s continued misclassification of employees, the FWO saw a need for specific deterrence to “send a message to the community that an employer cannot avoid paying minimum entitlements to employees by falsely labelling them as independent contractors”.

The Company accepted that “any penalty imposed should not derogate from the need for the Court to emphasise that Workplace Law is to complied with at all times and that failure to do so will result in significant penalty”. For employers, this case highlights to need to correctly classify employees in order to avoid substantial penalties.

To read the full decision, click here.

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