Australia’s regulator for workplace relations has set its sights on sham contracting, singling out the practice as a priority area for the regulator in 2019/20.

In an address to the 2019 Annual National Policy Influence Reform Conference in Canberra, Fair Work Ombudsman (FWO) Sandra Parker nominated sham contracting as one of five focus areas for the regulator over the coming financial year.

Other focus areas include improving employment related compliance in areas such as fast food, restaurants and cafes; horticulture and the harvest trail; managing supply chain risks and the franchising sector.

Sham contracting occurs where employers misclassify workers as contractors rather than employees.

Whilst the law enables people to be employed as contractors under genuine contracting arrangements, unlawful sham contracting occurs where the ‘contracting’ nature of the arrangement is a sham and those who are classified as contractors are really employees.

Whilst this can result from genuine employer error or misunderstanding of the law, it can also be an intentional act by the employer either to avoid paying award wages or to avoid paying entitlements such as leave payments or superannuation which are afforded to employees but not to independent contractors.

In the construction sector, responsibility for investigating sham contracting matters is split between FWO and the Australian Building and Construction Commission (ABCC).

Under the Building and Construction Industry (Improving Productivity) Act 2016 (BCIIP Act), the ABCB generally has jurisdiction in commercial construction.

For areas outside of this such as residential construction, however, responsibility for sham contracting matters falls to FWO.

A spokesperson for FWO indicated that the organisation has recovered more than $575,000 across all industries for more than 130 workers as a result of sham contracting arrangements over the five years to 2017/18.

Over that time, FWO had levied more than $1.8 million in penalties against contravening businesses.

Speaking particularly of construction, the spokesperson said the sector consistently ranks in the top five industries for sham contracting disputes resolved by the FWO and accounted for 9 percent of all sham contracting disputes resolved by FWO in 2018/19.

(In commercial construction, the 2017/18 annual report of the Australian Building and Construction Commission indicates that the ABCC received 53 enquiries in respect of sham contracting during 2017/18 from which it launched 12 investigations involving 29 alleged contraventions of the law.)

In her address, Parker outlined a stronger approach to enforcement in 2019/20.

Where workers complain of non-payment or underpayment, she says FWO has the power to compel employer records and that FWO inspectors can issue infringement notices whereby either records are unsatisfactory or the inspector believes that underpayment has occurred.

She says the regulator will also make greater use of compliance notices, which compel employers to get their house in order.

“While it can be difficult as a regulator to find the right balance between using enforcement tools and getting a timely outcome, I am conscious that Parliament has given us increased powers and more resources, so it’s on us to send a strong message of deterrence to would-be lawbreakers,” she said.