Construction company faces fines and compensation order after attempted sham arrangement

A construction company and its director face a compensation order and the imposition of civil penalties following a recent Federal Circuit Court decision.


In November 2010, the Director of the Company advertised for expressions of interest for the position of excavator operator. The worker, who was appropriately qualified, responded to the advertisement.  The worker was told by the Director that the Company had decided to start doing some of their own excavation work rather than using contractors.

The worker was told that if she was employed, she would be employed on a full-time basis at the rate of $35 per hour plus penalty rates.  Importantly, during their discussions, the worker said to the Director that she wanted the security of a full-time job due to her family responsibilities.

When the worker and the Director met at a later meeting about the job, the Director raised the possibility of the worker being engaged as an independent contractor but the worker rejected that proposal saying that she needed regular work’.

The worker was offered the job and commenced her employment with the Company in November 2010.

In February 2011, the worker told the Director that she needed to take carer’s leave as one of her children had to have surgery.

The day before the operation was to take place, a business development adviser on behalf of the company met with the worker and gave her a document entitled ‘Contract for Services’.  A covering letter which stated:

“As discussed again today, [the Company] does not have enough work to keep you employed as a full time employee. Over the past few months, we have tried to keep you employed on a full time basis, however it has become evident that this is not a tenable position for the Company. There is just not enough work to keep on a full time employee.

We would like to continue to utilise your labour, however, it would have to be on a sub-contractor basis, working on an ABN, as from Monday 28th February.

If you accept being a sub-contractor we will make every effort to give you 40 hours per week. However as you are aware this can vary, depending on excavation required.

If you do accept to work as a sub-contractor, [the Company] would pay you $35 p.h. which includes super.

If you were willing to incorporate a Company for about $450 on line, [the Company] would pay the Company $40 p.h.

As previously discussed, [the Company] are trying to expand, and if it’s (sic) goals are attained there will be lots of opportunities and we would like you to be part of that, but for the time being, it would need to be on an ABN or preferably as an incorporated Company.”

The Contract for Services document was a standard document used by the Company with other contractors.

The worker told the court that the business development adviser told her that the Company could not continue to employ her on a full-time basis but wanted to employ her as an independent contractor’.  The worker immediately rejected the independent contractor offer and reiterated that she needed workplace stability and a weekly wage as she had children under 10 years of age’.  The worker said the business development adviser replied to the effect of ‘You might have to think about it. You have a day to make a decision’.

The worker subsequently took advice and reconfirmed with the business development adviser that she would not accept the independent contractor offer and that she wanted to remain employed on the current arrangement.

The business development adviser replied with words to the effect then I have been instructed by [the Director] to give you a days’ notice’. 

That night, the business development adviser sent a text message to the worker saying, ‘sorry you hung up, it is not our intention for you to quit. However, if that’s what you have decided you will be missed. Where will the truck keys be’. The worker replied, I haven’t resigned, you’ve given me a days’ notice’. Again, the business development adviser replied ‘You had options to stay but decided to opt out instead you can still work as casual or an ABN’.

The day after being terminated, the worker rang the Director.  The Director told her that there was not enough work to sustain her full-time employment and this was challenged by the worker.  The Director said that he did not want her to go, but that it was an ABN or nothing’.   It was accepted that the Director also told her that he was making her redundant so he could employ somebody under an ABN.


At the hearing of the matter before Judge Simpson, the business development adviser was not called as a witness by the Company.  On that basis, Judge Simpson accepted that any evidence the business development adviser would have given would not have assisted the Company’s case.

The Company’s case was that the worker was dismissed because the Company did not have enough work to provide the worker with work on a daily basis and that the worker had refused to perform other duties, such as labouring.  Judge Simpson did not accept the Company’s evidence in relation to its claims that the worker refused to perform other duties.  Judge Simpson stated:

“[The Company] had excavator work to be done and [the worker] was a good excavator operator. I also do not accept that [the worker] was refusing to perform other duties.

I find that these two alleged reasons were manufactured by [the Director] to try to justify his behaviour that ultimately led to the dismissal of [the worker]. However, whether or not these two reasons existed, the evidence overwhelmingly supports a conclusion that a reason why [the worker] was dismissed was because [the Director] wanted to have [the worker] doing the same work for [the Company] but as an independent contractor.”

Judge Simpson ultimately held that the Company and the Director had breached the sham contracting provisions of the Fair Work Act 2009 (Cth).

In addition, it was held that the worker was entitled to one weeks’ notice or one weeks’ pay in lieu of notice, as opposed to the days’ notice provided by the Company and that the Company and Director had breached the Act in this regard.

The Judge requested the parties to make submissions on compensation orders and penalties.

Implications for Employers

This case is a clear example of the type of conduct that the sham contracting provisions in the Fair Work Act 2009 (Cth) is designed to prevent. Employers should exercise extreme caution when seeking to change the status of an employee to that of a contractor and always seek legal advice before making a decision of this nature.

Disclaimer: The information contained this article is general and intended as a guide only. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this update, Aitken Legal does not accept liability for any errors it may contain. Liability limited by a scheme approved under professional standards legislation.