Employment – Pitfalls and Personal Liability

Senior managers and directors are exposed to personal liability under the civil penalty provisions of the Fair Work Act 2009.  Some recent cases provide useful examples of blatant contraventions, resulting in penalties imposed on managers and directors personally, as well as contraventions arising from workforce structuring mistakes.
 
In this publication we highlight some workforce structuring mistakes, demonstrate how civil penalties have been imposed in practice, and explain how pitfalls can be avoided.
 
Workforce Structuring

• Are your “casual” staff really casuals?  Williams v Macmahon Mining Services¹.
• Are independent contractors really employees?  Fair Work O. v Centennial Financial² .

Casual

There is no “one size fits all” definition – it is a question of degree – but when a corporate group as large and as well-resourced as Macmahon is getting the “casual” employee issue so wrong, perhaps everyone should revisit the basic principles.
 
In the Macmahon case, the employee was engaged for approx. 12 months at the Argyle Diamond mine site, with a regular 2 weeks on and 1 week off roster fixed a full year in advance.  There was an employment agreement, which indicated that the engagement was “casual”.
 
It also indicated that Mr Williams’ pay rate of $40.00/hour was “all inclusive and takes into account all … allowances … and includes payment for all hours necessary to undertake your rostered duties, and as a casual employee, a loading in lieu of paid leave entitlements. The rate includes compensation for any necessary shift, public holiday and weekend work”.  The engagement could be terminated on one hour’s notice.
 
There was no paid leave and this is why the matter came before the Court, because following termination of the engagement, Mr Williams (and the Union behind him) claimed accrued leave.  He won.
 
Although the parties’ intention (recorded in a written agreement) is relevant, it is not conclusive.  A court will look at all of the facts to decide how the engagement relationship should be classified.  The relevant issues, in no particular order, are as follows:

• The engagement has been regular and systematic for a sequence of periods of at least 12 months³ ;
• The availability of work is the subject of significant fluctuation from one day, or one week, or one month, to the next so as to make the work, and hours of work, irregular and uncertain;
• The employer elects to offer employment on a particular day or days and when offered, the employee can elect (or not) to work;
• There is no certainty about the period over which employment will be offered.

Contractor -v- Employee

Again, there is no “one size fits all” definition clearly identifying a relationship as contractor or employee.  Again, the intention of the parties (and a written agreement recording it) is relevant but not conclusive.
 
The law maintains this “vagueness” to prevent lawful exploitation.  Employers often prefer to classify the relationship as one of client and contractor and in some cases the result is clearly unjust for the worker.  In other cases, the contractor is happy to reap the ‘cash-in-hand’ benefits of contractor work but will unjustly seek to claim employee status upon termination or for other purposes.
 
There are many relevant considerations including, again in no particular order, the following:

• Control – who controls the timing and method of work, the environment and work standard?
• Financial – are remuneration, benefits and tax consistent with employment (e.g. daily, weekly or piecemeal rates), leave, and PAYG?
• Equipment – who provides and maintains it?
• Risk – who bears the cost of remedying poor performance and who bears risk (i.e. insurance)?
• Delegation – can the worker delegate or assign some or all of the work to others, and do they?

Getting it right can be a careful balancing exercise.  If you are dealing with a situation that has features in common with both forms of engagement, get advice.

Civil Penalties

Many of the provisions in the Fair Work Act 2009 are either a “civil remedy provision” or provide for a “safety net contractual entitlement”, meaning that if someone fails to comply with the provision they become exposed to a financial penalty claim.
 
These claims can be (and are) made in addition to the claim for unpaid entitlements and can be (and are) made by a range of different people – a relevant union, an employee, the Fair Work Ombudsman, etc. – depending on the contravention.
 
The Centennial Financial Services case is useful because it provides a good analysis of the law differentiating between a contractor and an employee, it looks at “sham” contracting and also because both the HR manager and director of the employer company were personally fined for involvement in contraventions.
 
It involved a fairly obvious attempt to take an existing employed sales team and convert them to commission-only contractors.
 
James v Planpac International Pty Ltd & Ors (No2) [2010] FMCA 845 is interesting as well because it is an uncommon example of an employee, who already had orders for the payment of all his entitlements as a result of a District Court claim, getting the benefit of penalty orders as well, including personal penalty orders against the directors of his former employer.
 
The defendant employers submitted that any penalty should be paid into consolidated revenue, rather than to the former employee, but the Court disagreed, saying: “… in my view, it is appropriate that the penalties [totalling $34,000] should be paid to the complainant who has carried the burden of bringing the proceedings”.
 
Avoiding Pitfalls

Remember the following key points:

• Awards – It remains complicated, but since the implementation of the “modern awards” under the Fair Work Act 2009, it is easier to identify the appropriate award for a role.  Look at this issue when employing anyone.  The Ombudsman should be able to assist: www.fairwork.gov.au.
• Written agreement – If there is any doubt about the true nature of the relationship, a well-drafted written agreement will be influential in deciding the outcome, so commit the arrangement to writing and get it signed by the worker.
• Call it what it is – As an employer seeking to classify the engagement relationship as casual, part time, full time or independent contractor, think carefully about your requirements to avoid “dressing up” one relationship as if it were another.  If it waddles, quacks and has feathers, it is probably a duck, regardless of what you call it.
• Review – Often engagements begin as casual or independent contractor but morph over time into something else.  Ideally, this can occur because a temporary worker or consultant performs well and becomes indispensible.  Over time, the role becomes permanent.  Do regular reviews.

Competent legal advice – Of course, there is no substitute for competent advice from a lawyer experienced in the area.  Good “front-end” advice is much less expensive than scrambling to respond to an audit by the Fair Work Ombudsman or a complaint from an employee