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Sham-Ful Behaviour: University of Adelaide law professor explains sham contracting

Sham-Ful Behaviour: University of Adelaide law professor explains sham contracting

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Professor Andrew Stewart, of the Adelaide Law School discusses sham contracting, its effects and its development in Australia in recent years.
Professor Andrew Stewart, of the Adelaide Law School discusses sham contracting, its effects and its development in Australia in recent years.

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Categories:Types, Business/Law
Published by: Faculty of the Professions on Feb 08, 2012
Copyright:Attribution Non-commercial


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Sham-ful Behaviour
University of Adelaide law professor explains sham contracting
Professor Andrew Stewart Deputy Dean of the Adelaide Law School in the University of Adelaide spoke about a subject which he is passionate
sham contracting.
Andrew‟s main areas of interest are employment law, workplace relations, contract law and intellectual
property. He teaches, researches, works as a consultant in industry and also with governmentorganisations in all aspects of labour law. He has written a number of books, including Creighton and
Labour Law 
Stewart’s Guide to Employment Law 
. He s
ays: “A lot of the writing that I dotends to be a combination of analysing what‟s happening and putting forward ideas about how thingscan be improved.” 
 This article concentrates on the topic of sham contracting
what it is, why it persists, what is beingdone about it, and the part Andrew is playing. It is a huge phenomenon in Australia, which is knownfor its superb labour laws
yet people working under sham contracting arrangements are beingprevented from benefiting from the protection provided through these laws.
What is sham contracting?
 “Sham contracting occurs when people are
taken on as independent contractors but who in functional
terms are really employees.” This results in reduced rights, explained further below. How it affects
remuneration varies
some may be paid more or less than if they were explicitly employees. The
reasoning behind it also varies. As Andrew says: “There are a lot of different stories, and some of it
involves people being bought out of having rights; in other cas
es it is rampant exploitation.” This
article is not addressing those people who choose to be contractors but those whose rights arecompromised.
What is the difference between employees and contractors?
 I think many people will be surprised to hear that A
ndrew says: “Industrial laws don‟t have a definitionof who is an employee.” This seems like a basic point that would be covered by the legal system.Instead: “It is left to some common law principles that can be exploited by a carefully drafted contract.
In my professional capacity I can help draft a contract that will turn any employee into an independentcontractor
I should not be able to do that. So I have had a mission for many years of trying tosuggest ways in which that kind of practice can be min
So lawyers can change a person‟s working status simply through drafting a document. What about the
reverse? What if I want a contract that makes it clear that I am an employee, since this seems to bethe best position to be in?
 “Easy –
lawyers can do that too but it would be incredibly unusual, because the power is with thehiring organisation and they are usually the ones who benefit from having contractors rather thanemployees. Interestingly, I am an employee of my law firm [Andrew works as a consultant for thenational law firm Piper Alderman]. I chose not to be a contractor. Financially I could have been betteroff but I believe people should be treated as employees when they are employees, so this is consistent
with my belief.” 
What has been happening in Australia in recent years?
 “This issue has been around for many years and recently has become more of a problem as many firms
have been realising the benefits of treating people as contractors but still in functional terms being ableto control them as if they were employees.
 “About ten years ago, I put forward a new definition of the term „employee‟ that would go into ourindustrial legislation that would make it harder to disguise employees as contractors. By 2006, I‟d
managed to get the Democrats, the Greens and the Labor Party all on side with that, and it got to thepoint where it was actually put up to Federal Parliament as an amendment to what was then the
Workplace Relations Act.” At that time, the Labor Party then started to look more
likely to get into
office and they “realised how much certain vested interests, particularly in the housing industry, wouldarc up if they went ahead with that proposal, so they dropped it”.
So is anything likely to be done about it?
 “Since the Labor Party have been in government they haven‟t done anything about it. However, there
is an enquiry which has been conducted by the Australian Building and Construction Commissioner(ABCC). The report has just come out and it recommends further research into contracting
arrangements. Ultimately though I‟m hopeful that the inquiry is going to generate policy
recommendations that may help not just in the building industry but potentially in other industries. TheGreens in particular are still very keen on t
ackling that.” Andrew says that he is not sure whether the
current government will act on this but believes it is not out of the question.
 “As the evidence stacks up that this is becoming a real problem they might do something about it. The
Australian Council of Trade Unions (ACTU) is currently running an enquiry into insecure work. I havenot yet had the opportunity to do anything for that but I intend to. I will continue to agitate about that
issue in public submissions and I‟ll be finalising a new articl
e that again articulates the case for
 The issue is an ongoing topic for Andrew who talks about it in interviews and has been working in this
area for several years. “It is an issue which comes up constantly in discussion with Leon Byner on
I am regular guest on his show and it‟s one of the things he hears from a lot of his listeners,about people being forced to be contractors when they are really not.” 
Which are the key industries affected?
 “An obvious example is the housing industry, whi
ch operates on the basis of a lot of people working ascontractors who really ought to be employees
though they also have many genuine contractors.” 
Andrew believes the housing industry is likely to campaign strongly against any government thatproposes to do anything about this.Two other key sectors where sham contracting is rife are road transport and textiles. Andrew givesexamples of how sham contracting works in the road transport industry and what is being proposed todeal with this:
 “We‟ve just s
een two lots of legislation tabled in Federal Parliament to tackle issues which areessentially about sham contracting. There is some legislation about road transport drivers, in particularproblems of owner drivers of trucks. Some truckies are running their own business, but for many, theidea that they are running their own business is a nonsense
they are working for a single company.
 “So the legislation in parliament is setting up a new federal tribunal that will prescribe minimum rates
of pay, becaus
e there is pretty clear evidence that says that for a lot of these owner drivers that don‟t
have the protections of our industrial legislation, they are being forced to work at incredibly low ratesof pay and how do they then make a living, with the cost of the truck to pay off? The answer is theydrive longer and longer hours and they drive quicker and quicker. Speed and fatigue are two reasons
that are contributing factors to many deaths on our roads.” The other key industry is textiles: “We‟ve seen legi
slation introduced to extend protections that alreadyexist for outworkers in the textile, clothing and footwear industry. An outworker is a worker who doesmost of their work away from a formal workplace
for clothing, it could be a woman sitting at homewith a contract to produce a certain number of garments and she gets paid according to the number of garments she produces. The rates of pay are low and the companies are often short-lived operationsthat will quickly vanish.
 “There is a long contracting
chain running down from the major retailers, and as you run down thechain, there are typically some very ephemeral fly-by-night businesses that are here one day and gonethe next. At the bottom is the outworker
these tend to largely be women, many from a migrantbackground and they are the ones who are exploited. In days gone by these are the people who wouldbe working in sweatshops but these are less common now. Increasingly they are working from homeso we have legislation that is designed to protect those workers, whether they are employed or not,
even if they have been taken on for legal purposes as contractors.” 
 The problem does not stop at these specific industries or any geographical location. It is much morewidespread and ubiquitous, since the law is not in place to stop this kind of exploitation. Andrew says
 “the problem is, what we don‟t have is a recognition of the capacity to exploit that extends across
anytype of 
work. That is one of my great passions and missions to get something
done about it. But I don‟t holdout great hopes because I‟m very aware of the political obstacles. In an area like industrial relations
and labour regulation, there is a lot of politics. You can choose to ignore the politics, which will not getyou very f 
ar or you can choose to understand and work with the politics and that‟s something I try todo.” 
So if you find yourself in this situation, how can you defend yourself?
 “Let‟s say we have a situation where someone is working as an employee and is then ei
ther induced oreffectively forced to resign from their employment to become an independent contractor.
 “There are in fact provisions in what is now the Fair Work Act to deal with exactly that situation and
the Fair Work Ombudsman, which is the main enforcement body under our industrial laws, isincreasingly bringing prosecutions against businesses engaging in that kind of activity. It is not as if the protections
there, but either you have to be prepared to bring some sort of courtproceedings, or you go to a body like the Fair Work Ombudsman and tell them your story and see if they are prepared to investigate and do something about it.
 “The ABCC is also doing this in the construction industry. We are seeing an increasing number of sham
contracting prosecutions.
 “There is certainly some legal protection there for employees who are forced to become contractors.
There is also some protection for people who are hired as contractors but legally they are employees,but that really only catches businesses who have no idea what they are doing.
 “If I take you on to work for my business and I tell you that you are a contractor and I say „go and getyourself an Australian business number (ABN) and give me invoices, and I‟ll pay you and it‟s up to you
to worry
about the tax‟, the chances are fairly good that you are in fact going to be my employee, not
a contractor, which means that you have quite a range of good legal options. For a start, going to theAustralian Tax Office and asking where your super is, or checking whether you have been paid enough,such as meeting the minimum wage under our industrial laws, or whether you have been provided withleave entitlements.
 “The businesses who don‟t know what they‟re doing can be, and increasingly are being, caught ou
Businesses that know what they‟re doing and get legal advice and get a carefully drawn up contractand are careful about what they explain to the people they are taking on, there‟s not much that can be
at the moment. That is what I want to change
What about the Fair Work Act
how does that fit into this issue?
 “Over the last 20 years we have had constant change in labour legislation. I think maybe that era of 
change is coming to an end and settling down. We have the Fair Work legislation which has now been
in place for two years. It is about to be reviewed.” 
What is that legislation for? “The Fair Work legislation is the main industrial legislation that applies
across the country. Apart from in Western Australia it applies to everyone who works as an employeein the private sector.
 “It sets down minimum standards for employment on wages, working hours, leave entitlements; it
provides employees with protection against unfair dismissal; it deals with the rights of trade unions;and it deals with a range of other issues from the small, like the obligations of employers to keeprecords, up to the big principles about not being discriminated against on various grounds.
 “But it is focused on employees:
If you are working as an employee in Australia you have one of the most impressive andsignificant set of protections that exist in the developed world.
If you are a contractor you have almost no protection.
 “Essentially [as a contractor] you are not covered by the Fair Work legislation for most purpo
ses. Youhave the protection of most health and safety laws
those apply to anyone who is doing work at aworkplace, whether they are employed or a contractor. You have protections against discrimination soif you are

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