Fruit and vegetable store hit with $166,000 fine for sham contracting

The operators of a NSW fruit and vegetable store have been slapped with a $166,848 penalty following a Fair Work Ombudsman investigation into sham contracting.

E. A. Fuller & Sons, which operates a fruit and vegetable store in Bellingen, has been fined $139,040 and company director and part-owner Eric Fuller has been personally fined a further $27,808.

The fines were imposed in the Federal Circuit Court in Sydney after Fuller admitted he was involved in the company underpaying five casual employees a total of $82,475 when they worked as shop assistants at the store between 2006 and 2010.

The employees were paid flat hourly rates, which led to underpayment of their casual loadings, annual holiday loadings and penalty rates for weekend, overtime and public holiday work.

The court found two employees were knowingly misclassified as independent contractors and one of them was underpaid $60,827 over the three-and-a-half years she worked at the store.

Judge Rolf Driver said Fuller and the company had been careless and disregarded their obligations.

“There is a need to send a message to the community, and particularly employers, that employers must provide their employees with the correct entitlements and steps should be taken to understand and comply with those entitlements,” Judge Driver said.

“The court regards the sham contracting contraventions as particularly serious and recognises the damage that sham contracting can have to the Australian economy and other employers generally.”

Fair Work inspectors discovered the underpayments and also record-keeping breaches when they investigated complaints lodged by employees. The underpayments were subsequently rectified.

Fair Work Ombudsman group manager of operations, Michael Campbell, said in a statement that the court’s decision sends a message sham contracting and underpayment of vulnerable foreign and young workers will not be tolerated.

“Successful prosecutions such as this benefit employers who are complying with workplace laws because it helps them to compete on a level playing field,” Campbell said.

Legal expert Peter Vitale told SmartCompany the size of the fines showed the court was sending a message about sham contracting.

“Any employer who is engaging individuals on a basis that looks, feels and smells like employment and tries to call them contractors will need to take care,” he says.
“It’s Justice Gray’s old test of ‘You cannot call a rooster a duck’.”

Vitale says if a business perceives there is potentially some advantage to engaging a worker as a contractor they really must seek advice, whether it is from their accountant, their industry groups or their legal advisers, about whether the arrangement is more likely to be considered employment or a contractor arrangement.

“The risks of getting it wrong are amply demonstrated by this case,” he says.

Alison Baker, partner at law firm Hall & Wilcox, says the reality is that unless a person is running their own business, there is a risk they will be caught by sham contracting provision.

“A business needs to be satisfied a person engaged to provide a service by them is running their own business or is actually an employee,” she says.

“You need to make sure the worker has control over how they do their work and they are not controlled by the employer; they may be able to delegate work.”

Baker says there is a long list of signs which businesses can look at to determine whether a worker is likely to be viewed as an employee or contractor.

“A contractor relationship is set up as a business transaction, with workers properly invoicing for the work that they do,” she says.