Beware of Sham Contracting.

As the saying goes, an ill wind blows no one any good. Although the Covid-19 pandemic has severely impacted many but not all sectors of the economy, within the one sector, colloquially referred to as the ‘gig economy’, there is a major disparity between what has frequently been a boon for many companies on the one hand and arguably an erosion of the statutory rights for those working in the gig economy on the other. In the latter a fast-growing number of workers have abandoned their regular work to work on a task-by-task basis for various organizations or businesses, such as Uber or Airbnb. Although many workers appear to prefer the flexible and autonomous nature of engaging in this independent form of work, nevertheless in Australia as in many other parts of the world, controversy has arisen as to whether or not these gig-workers are being exploited; in short, it has been argued that the emerging employment situation is tantamount to sham contracting.
A recent case heard in the Federal Court that examined an Uber driver’s status as employee highlighted this issue. In 2019, the Fair Work Commission delivered its judgment (see Amita Gupta v Portier Pacific Pty Ltd; Uber Australia Pty Ltd [2019] FWC 5008 ) as to whether an Uber Eats driver was was an independent contractor and as such, was therefore not covered by the Commonwealth’s Unfair Dismissal Laws. Reportedly Amita Gupta and her husband, Santosh, had completed more than 2,000 deliveries between September 2017 and January 2019. She alleged that she was then unfairly dismissed for being late with a delivery. The Fair Work Commission rejected her claim and ruled that Amita Gupta was not an “employee” of Uber Eats by law and that for this reason the Commission did not have jurisdiction to hear her claim. However, the case did not end there because with the support of the Transport Workers’ Union (TWU), Ms Gupta took her legal fight to the Federal Court. At that hearing, Ian Neil SC, Uber’s barrister, submitted that there was “no relationship of employment” between Uber and Ms Gupta and that the Uber drivers worked for themselves rather than as employees and therefore drivers were under no obligation to accept jobs or complete deliveries. When questioned by Justice White about whether there would truly be no consequences for failing to deliver an order, Mr Neil reportedly said, Uber Eats was “agnostic” about cancellations in deliveries. However, the parties reached a confidential out-of-court settlement before a judgement could be handed down. The downside of this outcome is that like a number of other important Civil-case matters, crucial legal issues remain undetermined. That said and more generally, out-of-court settlements can save contesting parties much pain and stress.
Sham Contracting is illegal and occurs when an employer disguises an employment relationship as an independent contractual arrangement. Sometimes this can happen unintentionally, but increasingly the government has made efforts to make employers aware of what the consequences might be for breaching legislative requirements.
There are numerous factors that may help determine whether a worker is an employee or an independent contractor:
Independent contractors : normally has a high level of control over how and when their work is done; is often engaged for a specific task of time; bears liability for their work or injury and frequently has their own insurance; uses personally owned tools and equipment; is personally responsible for paying tax and GST; has personal ABN and submits invoices for work done.
By contrast some of the factors that constitute an employee are these: the employed person performs work under the direction of and under control of the employer; generally works standard or set hours (although this may not be the case if that person is a casual employee); normally has an expectation of continued work from the employer (except if one has been engaged for a specific task or specific period; does not bear financial risk for the work done because this is the responsibility of the employer; is entitled to superannuation contributions paid into a nominated superannuation fund by the employer; has income tax deducted by the employer; is entitled to paid leave, to annual leave, to carer’s leave, to long-service leave or in the case of a casual employee to receive a loading in lieu of leave entitlements.
Even though the Uber upshot focused on the gig economy, the matters raised of sham contracting and precise worker status occur throughout various sectors of the economy. It is important to notice that workplace law is both complex and evolving, not least because different sets of circumstances may apply to individual arrangements. It is therefore vital that employers adopt a pro-active approach to determine those workers who are ‘genuine’ independent contractors and those who might be considered by law to be employees. It is equally imperative that workers do all they can to guard against exploitive workplace arrangements that may deprive them of their lawful rights.
Regardless of whether or not you are an employer or a worker, our lawyers can assist you with advice on these important issues.