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‘Sham contracting’ lands business $160k penalties

Adam Zuchetti
Adam Zuchetti
14 December 2018 1 minute readShare
Gavel, court, judge

A Queensland business and its director have been hit with penalties worth almost $170,000, after admitting in court to “sham contracting” in a bid to convert employees into independent contractors.

According to the Fair Work Ombudsman (FWO), the admission was made by Gold Coast tour bus operator AVA Travel and its sole director Chin Kuen Yung.

The Ombudsman said that three drivers received a text message from the company — their employer — in September 2014, requiring that they provide an ABN and that they would no longer receive superannuation payments.

Following a tip-off from one of the drivers, FWO investigators examined the case, during which time the business admitted that the three remained employees, were still being paid the same flat rate of $20.59 per hour and their duties remained unchanged.

Between the flat rates, which failed to cater for penalty rates under the relevant industry award, and the unpaid super, it was determined that two of the drivers were collectively being underpaid by $43,477.21.

Judge Michael Jarrett of the Federal Circuit Court said that these amounts are “significant sums to workers earning relatively modest incomes”, but admitted that the sham contracting was more the result of “clumsiness and inadvertence rather than anything else”.

Despite this, and the full co-operation of AVA Travel during the process — including the full reimbursement of the amounts to the two drivers once the legal proceedings had commenced — Judge Jarrett imposed penalties of $164,475 on the business and a further $3,825 on its director personally.

Meanwhile, proceedings that the FWO had brought against AVA Travel’s operations manager, Terry Huang, and a partner business, JTH Enterprises, were dismissed by the court.

Ombudsman Sandra Parker said that the case served as a warning of her agency’s zero-tolerance approach to sham contracting.

“Companies that are involved in sham contracting apply a false label to an employment relationship, leading to workers missing out on their wages and entitlements, and providing an unfair commercial advantage over businesses following the law,” she said.

“Employers are warned that paying a flat rate undercutting minimum award rates can quickly add up to a substantial back-payment bill, and risk significant penalties from the court.”

The penalties bring to an end legal action that was first launched by the FWO almost two years ago in January 2017.

‘Sham contracting’ lands business $160k penalties
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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