A recent court decision highlights the consequences for employers, HR managers and directors of incorrectly labelling a person a ‘contractor’.
In an employment law case prosecuted by the Fair Work Ombudsman against Centennial Financial Services Pty Ltd, its director and HR manager, staff were moved from being employees to contractors in an attempt to save money as the company was “bleeding financially”.
As far as the HR manager was concerned:
- he was aware of the material facts of the arrangement the company and its director wished to put in place
- he knew the arrangement was to stop staff being employees
- he knew the contractor agreement listed duties and KPI’s which were really no different from those of the employment contract
- he attended the meeting where the change from being an employee to a contractor was presented to staff and he explained the contractor agreement
- he argued he was simply following the directions of the company/its director, did not have input into the decisions made, and had no authority apart from what the director approved
Adverse Findings – Criticism of HR Manager
Looking at the true substance of the relationship, the relevant individuals were found to be employees and the court was very critical of the employer and management and specifically said of the HR manager:
“I am willing to accept that Mr Chorazy [HR Manager] was overborne by Mr Mertes [Director] and exercised no independent judgement in those actions which have led to the finding that he was Involved in Centennial’s sham contracting and related breaches. Nevertheless, as human resources manager, he should have been aware of, and at least attempted to give advice on, Centennial’s obligations under the WRA [Workplace Relations Act].”
As the company was in liquidation, the proceedings related to just the director and HR manager and the court imposed penalties of:
- Director = $13,200
- HR manager = $3,750
An element of specific deterrence was included in the penalties, particularly in relation to the director. The penalties should also serve as a warning to others not to engage in similar conduct or breach workplace law.
Lessons for HR Managers
The consequences of wrongly labelling a staff member as a contractor include:
- personal prosecution
- personal fines for sham contracting
- potential significant underpayment claims re Award and NES entitlements
- tainted reputation following court proceedings
- difficulties in finding alternative work due to adverse court findings
What a HR manager should do:
- properly assess the nature of the relationship against accepted indicators of what evidences an employee relationship vs a contractor relationship
- obtain appropriate employment law advice if in doubt
- apply appropriate weighting to each factor that evidences the nature of the relationship
- decide whether to err on the side of caution where it is not entirely clear
- constructively raise, discuss and resolve objections or concerns at management level about whether a person is a contractor or employee
- not simply follow directions if they are aware that an employment or industrial issue exists with what is being proposed
Consulting an employment lawyer Sydney or approaching a workplace law expert for practical employment law advice will assist in ensuring the procedures and policies of your workplace are consistent with current workplace law.
Please call the leading employment lawyers in Parramatta, the Matthews Folbigg Workplace Solutions team on 9635-7966 to speak with one of our employment lawyers.