Fair Work to step up sham contracting crackdown, set sights on beauty, call centre and cleaning sectors

Sham contracting is prevalent across a number of industries including the call centre and cleaning sectors, according to a new Fair Work Ombudsman report, and some businesses have already been identified and are likely to face litigation by the workplace watchdog.

The report, which has been anticipated for several months, found that “a significant number” of trading enterprises using contractors should have been treating those workers as employees instead.

However, it also noted that not all the businesses using this tactic were doing so deliberately in order to avoid extra costs, and warned these companies should not be referred to as “sham contractors”.

“Although the audit activities focused more heavily on the cleaning services industry than the hair and beauty and call centre industries, the misclassification of employees as independent contractors was found in all three,” the report found.

The report audited 102 workplaces, but found that only 11 had employee-only workforces or did not engage contractors. Of the rest of the 91, 21 were found to be misclassifying employees as contractors.

One-third of those were knowingly doing so, and according to the report, “are therefore suspected of having contravened the sham arrangement provisions of the Fair Work Act”. The Ombudsman says it is currently pursuing litigation.

While the report also states there are understandable circumstances in which employers use contractors rather than classify them as full employees, it also stresses there are circumstances in which this is harder to comprehend.

“It is difficult to see how a cleaner performing simple work for a single principle contractor who wears their uniform, operates their equipment and accepts little or no commercial risk can be defined as anything other than an employee,” the report says.

It also wrote that while call centre workers could be genuine contractors, many call centre environments involve workers that are engaged in shift work, and strictly enforced break periods – elements of a traditional employee-employer relationship.

“It is difficult to see how workers in these circumstances exercise control over their own work and can be considered to be running their own businesses in an effort to make a profit.”

There were other complaints, specifically about “rent a chair” operations in beauty salons, and also about massage therapists working on a contract basis in day spays.

“While these occupations may require specific training or even formal qualifications, the degree of control over the working arrangements can result in these workers being assessed as employees,” it states.

The report is primarily concerned with the parties that are avoiding workplace responsibilities by entering into commercial arrangements with low-cost providers, which results in workers on below-award rates of pay.

“Turning a corporately-sanctioned ‘blind eye’ to outsourced work that is performed by another enterprise using contractors on below-award rates of pay may expose enterprises up the procurement chain to liability,” it states.

Overall, seven matters were identified that involved potential contraventions of the Fair Work Act, and these are now subject to a full investigation. Fourteen enterprises were assessed as having misclassified workers as independent contractors.

The problem, the report finds, is common, and that their prevalence in the report suggests a “broader educative response” is required.

“The audit activity has demonstrated that greater awareness among businesses of the circumstances that can lead an independent contractor being assess as an employee would be beneficial.”