THE Fair Work Ombudsman (FWO) has convinced the High Court of Australia to unanimously uphold an appeal in relation to a sham contracting matter which it describes as ‘significant’ for employment in Australia.

The High Court has ruled that Quest South Perth Holdings Pty Ltd, a provider of serviced apartments, breached s 357(1) of the Fair Work Act 2009 (Cth).

Section 357(1) provides that: 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.

The High Court found that Quest and labour hire business Contracting Solutions purported to enter a triangular contracting arrangement under which Contracting Solutions purported to engage two housekeeping employees as independent contractors, and then provided the services of the housekeepers to Quest under a labour hire agreement

The decision upholds allegations made in a legal action commenced by the Fair Work Ombudsman in 2011 and overturns an earlier decision on the matter by the Federal Court.

“The Full Court held that s 357(1) would only be contravened by an employer’s representation to an employee which mischaracterised the contract of employment that existed between the employee and the employer as a contract for services made between the employee and the employer, not between the employee and a third party,” a High Court judgement summary explained.

This was the first appeal lodged by the FWO in the High Court. Fair Work Ombudsman Natalie James said the High Court’s ruling on the matter was significant because it created greater legal protection for employees against sham contracting activity.

“The High Court’s decision offers greater protections in situations where employers attempt to avoid responsibility for providing employees’ lawful minimum wages and entitlements by claiming employees are independent contractors,” Ms James said.

A penalty hearing will now be scheduled in the Federal Court.

Click here for further information from the Fair Work Commission relating to contracting. Alternatively, AREEA’s expert employee relations consultants are available to answer your questions on this matter. Contact your local AREEA office.