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Sham agreements

 Technology, automation and artificial intelligence (AI) seeks to cut out the very work that professional service advisors do. 

 

Fair Work Commission hints at need for legislation changes on work contracts

Startup founders and company directors have been put on notice by recent developments in the way courts are assessing contracting arrangements with staff.

Uber was the latest high-profile startup to receive attention from the Fair Work Commission, which ultimately found in Uber’s favour in its bid to have drivers classed as contractors in December 2017.  This contrasts with judgements in similar cases in the UK and the US involving Uber.

Interestingly though, the Fair Work Commission’s Vice–President noted that the legal tests which determined this result may be out-dated, commenting; “Perhaps the legislature will develop laws to refine traditional notions of employment or broaden protection to participants in the digital economy”.

What does this mean for your business?

The way in which your employee or contractor agreements are assessed can impact the obligations and potential penalties for your business. Ultimately, a court will consider the substance of the agreement rather than its form -meaning, no matter what you call the agreement, courts will look at features and style of the work, the relative bargaining strength of the parties and whether total pay is equivalent to what an employee might receive doing the same job.

As an example, consider the case of 2016 case of Fair Work Ombudsman v Australian Sales and Promotions Pty Ltd. This matter centered around an English backpacker Mr. Beckitt, who was engaged as an independent contractor to promote and enlist members of the public to certain charities.

On starting his engagement, Mr. Beckitt received advice from an Australian Sales and Promotions manager encouraging him to sign up for an ABN and apply for public liability insurance as required for any other contractor. However, when the court was asked to determine Mr Beckitt’s employment status, it looked beyond these surface level actions.

Mr. Beckitt attended the business premises each morning, he worked set hours, was not required to submit invoices and paid for the public liability insurances via deductions from his pay.  Because of this, the Federal Circuit Court determined that Mr. Beckitt was in fact not running his own business and was doing work exclusively for Australian Sales and Promotions. The company and company director were held liable for $100,000 and $24,000 respectively, for the creation of a sham agreement. The Fair Work Act 2009 will continue to be used to intervene where genuine employees have signed a ‘sham’ contractor agreement to allow employers to avoid their obligations. This area will continue to draw focus as Australia continues its move to the digital economy.   

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Law Squared has helped many startups and high-growth businesses with negotiating, drafting and implementing employee agreements.  To find out more, contact Law Squared.


Nic Palmer

npalmer@lawsquared.co

0426 013 353

 

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