Menu
Call: (07) 5532 3199
Tony, Michael and David Partners at ABKJ
ABKJ Lawyers

The Rise and Fall of Sham Contracting

The lines dividing the roles of employee and independent contractor are becoming increasingly blurred.

Organisations reliant on the label of the latter to protect them from employer obligations such as minimum wage, superannuation and leave entitlements are now facing the pressure of discerning ‘substance not form’ debate. Workers from various sectors, particularly within the gig economy (think Uber and Foodora), are campaigning against the unsupportive working conditions they face as independent contractors.

Recently, the Fair Work Ombudsman launched legal action against Foodora on the basis that the delivery organization engaged in sham contracting. As outlined in an earlier article, sham contracting is an illegal method of employment under section 357 of the Fair Work Act 2009 (Cth) where an employer misrepresents an employee as an independent contractor (generally to avoid employer obligations and/or liability).

Over the past week, news has emerged of the filing of the largest employment class action in Australia’s history. Over 4,000 workers are expected to join an action against telecommunications company Tandem, on the basis that sham contracting arrangements have unfairly restricted their access to fair employee entitlements. Tandem, a company which supplies subcontractors to industry giants such as Telstra, Foxtel and NBN Co, allegedly exercised employer-like control over its workers, including in relation to hours of availability, circumstances of work, work attire and vehicle use. Shine Lawyers, who are filing the suit, assert that this level of influence coincides with the role of employer. As such, Tandem owes its workers rights such “…the right to receive a wage, to annual leave, long-service leave, to overtime and other allowances.”

One former subcontractor for Tandem spoke to ABC about his experiences with the company. Like many who begin working as independent or subcontractors, the appeal of the arrangement lies in the flexibility and independence of the work. “Our time was no longer managed by ourselves but was managed by a computer that dictated when we start and when we finish in a day… They had exclusivity to our time right across the day and it prevented us from being able to do any other work.” This level of control is what Shine Lawyers anticipates will allow them to demonstrate the presence of an employer-employee relationship.

This is not the only recent sham contracting scandal of late. Not only has Foodora recently been found to have engaged in sham contracting, but in the United Kingdom in 2017, ride-sharing company Uber lost both a tribunal hearing and subsequent appeal against two drivers who claimed they were essentially employees of Uber (but labelled independent contractors/self-employed by the company in an effort to sidestep employer-related obligations). On the back of this case, disdain is growing within public forums for gig economy actors such as Uber who allegedly utilise the label ‘independent contractor’ to avoid basic obligations such as ensuring minimum wage for workers. Consider food delivery companies such as Deliveroo and UberEATS: the Transport Workers Union (TWU) alleges that over three quarters of food delivery cyclists earn less than minimum wage.

It isn’t all bad news for the gig economy, though. In the last three months alone, 3.7 million Australians have travelled by Uber. Australians are spending $2.6 billion on food delivery through apps like UberEATS and Deliveroo each year. Earlier this year, the Australian branch of Uber had a win when the Fair Work Commission ruled against a former driver who asserted they were an employee in an unfair dismissal claim filed after they were deactivated following a low approval rating.

Societal attitudes and the policy framework surrounding the technicality of the gig economy and the characterization of its workers continue to shift. It seems likely that soon – potentially as a result of the Tandem class action – a firm precedent will be set and the gig economy will need to adjust its mechanisms accordingly.

For further information on employment law or employment contracts, you can read some of our most frequently asked employment law questions.

We Can Help

If you are a business, allow us to check your employment contracts to ensure that you are protected. Alternatively, if you think that you may be employed under a sham contract, don’t hesitate to contact us on (07) 5532 3199.