International retailer eCosway faces court action for sham contracting

An international household products retailer is facing court action, as the Fair Work Ombudsman alleges it engaged in sham contracting which resulted in an Adelaide employee being underpaid.

The FWO alleges eCosway underpaid an employee by more than $32,000 over 18 months by wrongfully classifying her as an independent contractor, when in reality she was an employee.

Sham contracting occurs when an employer attempts to disguise an employment relationship as an independent contracting relationship.

The employee was working at the eCosway Unley and Kensington stores in Adelaide under the control of eCosway and was not conducting her own business.

The classification of the employee as a contractor led to the worker being paid according to percentage of store sales, when the FWO alleges she was entitled to Award entitlements including minimum wages, leave pay, overtime and penalty rates.

In total the FWO claims it led to her being underpaid a total of $32,116 between March 2011 and September 2012.

The investigation was triggered by a complaint from the employee.

SmartCompany contacted eCosway for comment but received no response prior to publication.

Workplace law expert Peter Vitale told SmartCompany earlier this year the courts have been sending a message that sham contracting is not acceptable.

“You cannot call a rooster a duck,” he says.

“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.”

Vitale says if businesses believe there could be an advantage by classifying a worker as a contractor, they need to seek legal advice from their accountant, industry groups or legal advisors.

Businesses have been warned by the FWO numerous times that misclassifying employees won’t be tolerated.

“A business operator cannot automatically convert an employee who is clearly not operating their own business into an independent contractor simply by directing the worker to obtain an Australian Business Number,” Fair Work Ombudsman Natalie James previously said in a statement.

“In cases where we suspect sham contracting is occurring, we look behind the often carefully drafted legal documents to determine what the correct classification for workers is under workplace laws.”

In July this year a New South Wales transport business Happy Cabby was and its sole director were fined a total of $286,704 for sham contracting.

In April the FWO achieved another large fine for the contracting law breaches, with the operator of a fruit and vegetable store in Bellingen E.A. Fuller & Sons fined a total of $166,848.