With ever increasing economic pressures employers are frequently required to consider ways to reduce employment and labour costs. While there are many ways to lawfully achieve this, requiring an employee to become an independent contractor performing the same work, certainly isn’t one of them.

The recent case of The Director of the Fair Work Building Industry Inspectorate v Robko Construction Pty Ltd & Anor [2014] FCCA 2257 demonstrates how strictly the courts will enforce the sham contracting provisions of the Fair Work Act 2009 (Cth) (the FW Act).

Robko Construction Pty Ltd (Robko) wrote to one of its employees stating it was happy with her work, and wanted her to continue working, but it did not have enough work for her to continue as a full-time employee. Robko provided the employee with an independent contractor agreement and told her it was “an ABN or nothing”. When the employee declined to sign the agreement, Robko terminated her employment.

Proceedings were instituted against Robko, under the sham contracting provisions of the FW Act.  These provisions render it unlawful to:

  • dismiss or threaten to dismiss an employee in order to engage the individual as an independent contractor to perform the same, or substantially the same, work; and
  • make a statement, known to be false, to persuade or influence an employee to enter into a contract for services to perform the same, or substantially the same, work as an independent contractor.

The Court found Robko had dismissed the employee in order to engage her to perform the same work as an independent contractor and avoid having to pay her employment entitlements. The Court rejected Robko’s argument that it had dismissed the employee due to a lack of work. The Court found that Robko had contravened the sham contracting provisions of the FW Act. The fact that Robko’s unlawful purpose was not achieved (i.e., the employee did not enter into an independent contractor agreement) did not undermine the case against the company.

While converting employees to independent contractors may seem like a quick way to save costs, if the contracting arrangements are a sham and the former employee is to perform the same, or substantially the same work, this ‘cost saving’ exercise may turn out to be very costly.

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