Triangular Employment Arrangements, Illegal? Maybe, says High Court.

Section 357 of the Fair Work Act 2009, or as it’s more colloquially and pejoratively known as, the sham contracting provision, states that an employer cannot misrepresent an employment relationship as one of independent contracting. For years, employers have side stepped this provision by introducing a third party, such as a labour hire company, into a triangular arrangement with the employee. Well, no one likes being put in a triangle, and in fact, this triangular arrangement may constitute sham contracting, according to the High Court of Australia’s recent ruling, Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd & Ors [2015] HCA 45.

The specific case involved two housekeepers for Quest South Perth Holdings, whom Quest attempted to “convert” into independent contractors, by moving them, along with a receptionist to a labour hire company. If you’re thinking this sounds a little fishy, you’d be right, and so did the High Court. The labour hire company provided the housekeepers with “contractor applications,” which stated they would be, “an independent contractor for [Quest] rather than an employee. Nothing will change in terms of your roster of shifts and you will all get work at [Quest]. The pay rates are going to change so you’ll get one flat rate whenever you work but it will be higher than the base rate now.”

The housekeepers continued to do the same work they did for Quest, and in reality, were still employees of Quest. According to the majority judges, “a representation made by an employer to its employee that he or she is providing work as an independent contractor under a contract for services made with another person is not actionable.” Therefore, the housekeepers were never legally “converted,” they were still employees of Quest.

The “Odco” style triangular contract, is a means of hiring employees through commercial contracts (contracts for services) as opposed to employment agreements (contracts of service.) It refers to Building Workers Industrial Union of Australia & Ors v Odco Pty Ltd (1991) 29 FCR 104, a case brought by the building unions against Odco, which provided self employed construction workers to the building industry. The unions boycotted the sites, as they do, and prevented the workers from entering the buildings. The Federal Court at the time ruled that the union’s boycott was in violation of the Trade Practices Act 1974, but they also had to decide, in common law, if the Odco workers were employees or contractors, and they decided that they were contractors, and not employees of anyone.

The High Court’s decision makes it clear now that an employer cannot avoid the sham contracting provision merely by using a labour hire company. This decision is relevant for any Australian business that has adopted an “Odco” style contract. Some of these arrangements will be untouched by the ruling, and each arrangement must be evaluated by its own facts.

If you aren’t sure whether your use of labour hire employees would constitute sham contracting, give Cube Workplace Solutions a call on 1300 122 823 and speak directly with a employment lawyer – for your own peace of mind.