Sham Contracting
Cameron Dean - Partner
20 October 2011
Overview
 Definition
 Employees v Independent Contractors
 Implications for employers
 Recent cases
 Getting it right
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What is sham contracting
 Where an employer purports to engage a worker
as an independent contractor when, in reality,
they are employees
 Lend Lease Project Management and Construction
(Australia) Pty Ltd v CFMEU [2011] FCA 912
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Outcome of sham contracting
 Results in worker receiving less entitlements
than if they were an employee under:
 NES
 Award
 Enterprise agreement
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Employees v Independent Contractors
 Different definitions apply under laws about
 employment
 tax
 workers’ compensation
 superannuation
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Implications for employers
 Fair Work Act 2009 (Cth)
 sham contracting provisions
 civil penalties
 employer can also be liable for statements made by
employees about sham contracts
 Independent Contractors Act 2006 (Cth)
 ‘unfair contracts’
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Office of the Australian Building and
Construction Commissioner
 Currently three proceedings before the court and
50 investigations nationally relating to
allegations of sham contracting
 Conducting inquiry into sham contracting in the
building and construction industry
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Office of the Australian Building and
Construction Commissioner
 Conducting targeted audits of employment
records of various Brisbane building sites looking
for sham contracting issues
 Initial focus on subcontractors engaged on
projects funded by the Queensland Government
that were affected by work stoppages in late May
2011
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CFMEU v Nubrick Pty Ltd [2009] FMCA
981
 Terms offered to new workers
Independent Contractor Indicators
Needed ABNs
Invoiced Nubrick for work
Flat rate of $30.00 and required to pay own tax
No annual leave, paid sick leave or superannuation
Possibly told they could delegate work
Contract signed was headed 'Induction checklist for: Short
Term Contractors’
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CFMEU v Nubrick Pty Ltd [2009] FMCA
981
 Terms offered to new workers
Employment Indicators
Fixed hours of work
Were told when to start and finish
Engaged to perform continuous work for Nubrick
Provided with some safety gear
Used Nubrick equipment
No special qualifications or skilled labour
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CFMEU v Nubrick Pty Ltd [2009] FMCA 981
 Contract did not clearly indicate type of
arrangement
 Court decided they were contracts of
employment
 Defence applied to employer
 manager did not know that contracts were for
employment (Test 1)
 manager was not ‘reckless’ as to whether the contracts
would be for employment (Test 2)
 Application dismissed
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Darlaston v Risetop Construction Pty
Ltd & Ors [2010] FMCA 220
 Five employees told they were independent
contractors and the employer wanted to make
this clearer
 Took steps to alter employment agreement
 required employees to set up intervening companies
 stopped paying superannuation and LSL entitlements
 stopped paying workers’ compensation insurance and
advised workers they would need their own
 increased workers’ pay ($35/hr  $37/hr)
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Darlaston v Risetop Construction Pty
Ltd & Ors [2010] FMCA 220
 Held that employer had misrepresented to
employees that they were contractors
 Penalties imposed
 company - $10,000
 two Directors - $2,000 each
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FWO v Centennial Finance Services Pty
Ltd & Ors [2010] FMCA 863
 Dismissed sales employees and re-engaged them
as ‘consultants’ under a contractor agreement
 Duties prior to dismissal substantially the same
when re-engaged as contractors
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FWO v Centennial Finance Services Pty
Ltd & Ors [2010] FMCA 863
 Prosecutions brought against the employing
company, its director and HR manager
 True arrangement held to be employment
contract
 Company, director and HR manager all
contravened statutory requirements
 director fined $8,800
 HR Manager fined $2,000
 company not fined (in liquidation)
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ABCC v Rapid Formwork Constructions
Pty Ltd & Anor [2011] FMCA 649
 Two construction industry workers were required
to enter contracts under which they were
 paid an hourly rate
 required to get ABNs
 provided some protective work clothes
 provided a lift to work
 employed exclusively by Rapid Formwork
 directed as to their tasks, hours of work and meal
breaks by Rapid Formwork
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ABCC v Rapid Formwork Constructions
Pty Ltd & Anor [2011] FMCA 649
 The workers
 did not pay superannuation contributions and none were
paid for them
 did not have public liability insurance or accident or
sickness insurance
 One of the workers
 was not provided with annual or sick leave, nor public
holidays
 was not registered for GST
 had some tools provided by Rapid Formwork
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ABCC v Rapid Formwork Constructions
Pty Ltd & Anor [2011] FMCA 649
 Company cooperated with investigation and
agreed to back pay a total of $6816 in unpaid
wages and entitlements
 Company penalties
 $21,000 (total) for two statutory breaches
 $1500 for breaching the modern building and
construction industry award
 $1500 for breaching ACT award
 Director fined $1500
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Getting it right
 Acting ABC Commissioner Brian Corney on 2
September 2011
 ‘Today's decision should give employers in the building
and construction industry cause to review their own
practices to ensure they are compliant with
Commonwealth workplace laws’
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Getting it right
 Understand the differences between employees
and contractors – noting the different legal
definitions
 Make your contractual arrangements clear avoid blurring the lines
 Ensure compliance in practice
 Avoid sham arrangements: if it looks like a
duck, swims like a duck and quacks like a duck
then it probably is a duck
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Contact details
Presenter:
Cameron Dean
Position:
Partner
Direct line: 07 3233 8619
Email:
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cdean@mccullough.com.au
Personal Property Securities Act 2009
(Cth)
Kristen Podagiel - Partner
20 October 2011
Personal Property Securities Act 2009
overview
 What is it?
 Who does it apply to?
 What will it affect?
 What’s the big deal?
 What do you need to do before January?
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What is the PPSA?
 Heralded as the most significant change to the
law since the introduction of GST
 Intention is to create a ‘one stop shop’ for
registering interests (security interests) in
personal property
 Commencing in January 2012 (until we hear
otherwise...)
 Will almost certainly affect your business
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Who does the PPSA apply to?
 Basically, everyone.....
 individuals
 companies
 Australian
 foreign if the assets are located in Australia
 partnerships
 other legal entities
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What will the PPSA affect?
 Security interests in personal property
 A security interest is:
 an interest in relation to personal property
 provided for by a transaction
 that, in substance, secures payment or performance of
an obligation
 Some things are deemed to be security interests
e.g. retention of title
 the great debate: does an owner have a security
interest that needs to be registered?
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What is personal property?
 basically means all property other than land and
fixtures/things attached to land
 Certain rights and licences (e.g. water rights and
mining tenements) are excluded
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What’s the big deal?
 Some very grey areas.....what risk mitigation
strategy will your business adopt?
 Legal ownership of PPSA property does not
necessarily win out
 Wide range of interests that would not usually be
regarded as security interests have the potential
to be caught by the PPSA (and might need
registration)
 registration has potential to result in sensitive
documents being disclosed
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Priorities
 The PPSA has rules to determine priorities
between competing interests
 The status of the security interest determines the
priority it has
 In general, a perfected security interest will have
priority over an unperfected interest
 registration / possession are key to perfection
 Grey area: owner may lose priority if they don’t
perfect their interest in their own property
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Hierarchy of priorities
Control (limited application)
(controllable goods)
First in time perfection
(registration or possession)
Second in time perfection
(registration or possession)
Unperfected security interest
(e.g. written agreement only)
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Hire/loan of an asset
 I own an asset and I lend it to you for a set term
 I no longer have possession of the asset but I have an
interest in eventually getting my asset back at the end
of the term
 but I don’t register my interest (unperfected)
 You have secured finance with BankCo –
registered against you (perfected)
 You go under. BankCo steps in.
 Does BankCo has a greater right to my asset
than I do?
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Sale of an asset
 I have entered into a contract to buy an asset
from you
 The contract is not yet complete
 I have paid a deposit
 but you still possess and own the assets (title hasn’t yet
passed)
 Should I register my interest in your assets?
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Key things to consider in preparation
 If you don’t have the property in your
possession, consider if you have a security
interest you need to register (even for intragroup
arrangements)
 review your standard suite of contracts for PPSA
issues
 what systems can you implement to make this as
painless as possible?
 what materiality threshold will you adopt?
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Summary
 PPSA is a fundamental change in law
 You need to work out how the PPSA affects your
business
 What will you need to do differently to deal with
the PPSA – before January 2012?
 There are still some grey areas to be clarified –
what risk are you prepared to wear?
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Contact details
Presenter:
Kristen Podagiel
Position:
Partner
Direct line: 07 3233 8757
Email:
kpodagiel@mccullough.com.au
This document covers legal and technical issues in a general way. It is not
designed to express opinions on specific cases. This document is intended
for information purposes only and should not be regarded as legal advice.
Further advice should be obtained before taking action on any issue dealt
with in this document.
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