It’s a sham: a reminder for businesses that contracting arrangements need to be legal

While business owners have the authority to decide how to structure arrangements with workers, the risks of engaging people incorrectly can be catastrophic.
It’s a sham: a reminder for businesses that contracting arrangements need to be legal

With the passing of the Closing Loopholes Bill, and modern award rates increasing annually, as an employer, you might be thinking why should I even have employees? Why not just have my employees agree to work as contractors instead?

While as a business owner, you certainly have the authority to decide how to structure your arrangements with workers, the risks of engaging people the wrong way can be catastrophic, and you may want to keep this recent case in mind.

Uncovering the cleaning sham

Earlier this year, the Fair Work Ombudsman (FWO) initiated legal action against cleaning services company ProClean HQ Pty Ltd (ProClean) with allegations of substantial underpayment and sham contracting.

ProClean went into liquidation in 2021, however, before this, they were subcontracted at Sydney Trains’ Auburn Maintenance Centre to provide cleaning services. The whistleblower who alerted the FWO, expressing underpayment concerns, was the company that looked after maintenance operations at the same centre.

The allegations made were concerning young adult Sri Lankan and Nepalese nationals on varying types of visas. ProClean allegedly breached the Fair Work Act 2009 (Cth) provisions by knowingly misclassifying five cleaners as independent contractors resulting in an alleged underpayment totalling $125,565 for wages over 14 months. This amount is calculated based on the five cleaners being covered by the Cleaning Services Award 2020, due to underpayment of award entitlements including minimum wage rates, casual loadings, weekend and public holiday penalty rates, overtime rates, shift loading, and allowances.

With the FWO watchdog prioritising vulnerable workers, sham contracting and non-compliance in the contract cleaning area, it’s now more important than ever to ensure your business is compliant, and not engaging people illegally as contractors.

As former Fair Work Ombudsman Sandra Parker said, “Sham contracting is extremely serious conduct because it involves employers knowingly or recklessly misrepresenting to workers that they have less lawful rights than they actually do, and it often goes hand in hand with exploitation of vulnerable workers… Employers need to be aware that the FWO is prepared to take strong enforcement action to stamp out sham contracting and protect the rights of vulnerable workers”.

The FWO is seeking penalties in Court against the two former directors of ProClean, as the company itself cannot be held to account in court due to being in liquidation. Both directors face penalties of up to $12,600 per contravention, in addition to orders to make payments to the workers to rectify the alleged underpayments, plus superannuation, and interest.

Are your contracts in order? Our experts can help you check

Having workplace relations experts in your corner can help your business ensure that employees are engaged correctly, paid accurately under the relevant award, and are aware of their lawful workplace rights as an employee.

chat icon

If the information shared in this article has raised any questions about sham contracting or you have another workplace issue you need assistance with, please reach out to our 24/7 HR Advice Line.

Not a Citation HR client? The team at Citation HR can support your business on a range of workplace matters. Contact us today to arrange a confidential, no-obligation chat.

About our author

Brigitta Poulos is a Workplace Relations Consultant at Citation HR who loves helping clients and businesses achieve excellent workplace compliance with their obligations and duties, and interpretation of relevant employment legislation and awards. She particularly enjoys researching and explaining new or ‘hot’ topics in the workplace relations and human resources fields to our clients.