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Sham Contracts:
Discussion

Our sham contract analysis from 12 October has generated a number of enquires. One ICA member has submitted a strong critical opinion and we've responded. It's worth reading because the 'debate' will give a deeper understanding of the issues. Submit your opinions and we'll keep the responses and information coming.

[What do you think about the article and the discussion? Please read the original ICA posting and the exchange below, and if you would like to contribute to this discussion, please e-mail your thoughts to us at: shamcontracts@contractworld.com.au.]

On 18 October 2009, Arno wrote:
    We need a set of attributes to define a contractor and a registering body (could this be the ICA?)

    Then, for example, if I set myself up as a contractor as evidenced by: registering myself as a contractor, obtaining an ABN, dealing appropriately with the ATO and providing services to a number of end users, then I am a contractor.

    When I go to a site and perform actions it is possible that other people may provide input into my actions. They may even to some degree direct my actions. They may tell me when to start and when to finish. Does this make me an employee?---no, of course not---I am a registered contractor performing actions in order to receive payment and as such I want to please those who are paying me. I must "fit in" with the prevailing surroundings and work within the pre-existing framework. I am in business.

    On a recent visit to a mine site the drilling contractors were required to "fit in" with start and stop times, with OHS requirements, with meal times and camp rules and a host of other small issues. Does this impinge on their contractor status?---of course not. They are engaged to perform a job of work within the framework of the camp and when the job is done they will look for another contract. Under observation on an hour by hour or even day by day basis they might "walk and quack like a duck", but ducks they are not. In my industry there are many sham contracts and contractors and I, for one, would like to synthesize and clarify this whole argument.

Comment from ICA member (cast as opinions A to D below, with Ken Phillips' responses, posted 16 October 2009)
    Opinion A: It is not clear from this report what was the outcome. Were the ICs construed as employees and therefore paid the entitlement of employees? If they were employees then could they use the Fair Work legislation? Why did they take this action anyway?

    Answer to A (Ken Phillips): The ICs were found in fact to be employees. The judgment doesn't go into detail on why this finding was made. Yes, as a consequence, the employees would be entitled to 'employee benefits'. Whether or not they would have received extra money as a result is unknown. If they had been paid correctly as contractors they would have been receiving more money in their hand than as employees. Being employees could mean an adjustment down of their weekly income to allow for the employee entitlements. But not enough detail is in the judgment to know. On the sham contract issue, it is a provision of the Fair Work Act. In this case it was the CFMEU which took the action.


    Opinion B: My opinion on the matter is that whenever an organisation engages any party (be it a sole operator or someone with an ABN) and requires them to take direction on a day to day basis from the business, and is required to attend certain hours on site, then the contract is a sham. Whether there is intent or not the fact is that the engagement is really just attempting to subvert employment law. In almost EVERY case in the ICT industry for ICs the contracts are shams.

    Answer to B (Ken Phillips): This is probably the position of the CFMEU. To para-quote one judge "if it looks like a duck and quacks like a duck, it is probably a duck". But because someone is working in an environment that we would normally expect to be employment doesn't mean it is employment. Society is changing and the way we do work is changing. Journalists were once all employees but now many are contractors being paid per article instead of a wage. Yet journalists still sit and write. Should be assume, therefore, that every journalist is an employee? No. We must look at factors about how work is organized. With regard to 'shams' it is reasonable that a sham must have a measure of intent.


    Opinion C: To test this I could simply sign an agreement with an organisation and then say to them "Ok, let me know what you would like me to do and when we will be meeting and I will make appointments". They would then say "Oh, well, we have a desk out there for you, just take a seat and we will work out what we need you to do and let you know". The fact is that most organisations don't know how to deal with INDEPENDENT contractors. They will know how to deal with consultants and will value their time and make sure that everything is done to ensure that their time is not wasted (because it is expensive) but when it comes to contractors then you just sit around waiting for mediocrities to make a decision.

    Response to C (Ken Phillips): Agreed! We come across far too many organisations where they don't know how to deal with independent contractors.


    Opinion D: It would be an interesting test, and I would like to test it and then have the Federal court decide whether or not it was a sham. The fact is that the organisations would claim that they didn't know, the court would then say that it wasn't a sham because there was no intent, and nothing would happen. THE REALITY IS THAT THE INDEPENDENT CONTRACTOR LEGISLATION IS USELESS.

    Response to D (Ken Phillips): As I indicated in the earlier commentary, its unlikely that courts will accept excuses for very long. Eventually the courts will start to see ignorance of the independent contractor v employee tests as 'intent to stay ignorant.' There's lots of examples where courts don't take ignorance of the law as an excuse. It will depend on each circumstance. Alleging that the Independent Contractor Act is useless is not relevant, because the sham contract provisions are contained in the Fair Work Act.

[If you would like to contribute to the discussion, please e-mail your thoughts to us at: shamcontracts@contractworld.com.au.]