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Sham contracting costs labour hire firms dearly

Adam Zuchetti
Adam Zuchetti
08 January 2019 2 minute readShare
Angry judge

Sham contracting and underpayment that allegedly resulted in “significant hardship for workers” have seen two labour hire firms, as well as their director and a consultant, collectively fined $216,000.

Penalties of $125,874 and $77,112 were handed down by the Federal Circuit Court to Easttrac Pty Ltd and Klemtrac Pty Ltd, respectively, according to the Fair Work Ombudsman (FWO), after both were found to have engaged in sham contracting in their dealings with employees sent to one of South Australia’s largest care providers.

Proceedings initially launched against Care Providers Pty Ltd trading as ESAR Home Care, where the workers were placed, were subsequently dropped.


In addition to the company penalties, Victorian man Leo Welch, the sole director of Klemtrac at the time of the 2015 breaches and the sole director of Easttrac from 23 June 2015, was personally fined $7,711.

Meanwhile, a consultant responsible for engaging and managing the workers, Peter Wallis, was also fined $5,783 in relation to the case.


In total, the penalties amount to $216,480.

Those fines were the result of both men and the two companies having been found to have misclassified two workers as contractors, and had underpaid them as a result to the collective tune of $8,354.

Two of those affected had worked as personal care workers, while the other two had carried out domestic and cleaning duties.

Rather an accidental breach of workplace laws, Judge Timothy Heffernan said that it was a “strategic decision made substantially for the purpose of saving money” which had an enormous impact on the affected workers.



Both companies, as well as Mr Welch and Mr Wallis, admitted responsibility in court, the FWO noted.

“Whilst the amounts of underpayment and non-payment do not appear at first blush to be large, the contraventions had a significant impact on the employees and occasioned them financial stress and worry,” the judge said.

Judge Heffernan noted that one of the workers was a mother of four, who on occasions was forced to only feed the children and not herself. Another reportedly incurred a tax bill of $5,000 because the underpayments meant they could not set aside the relevant tax while meeting their basic living expenses.

The action came as a result of a request from liquidators for the Ombudsman to investigate both companies as well as Care Providers.

“We treat instances of sham contracting activity very seriously because it involves workers being deprived of not only their lawful minimum wages, but also fundamental entitlements such as sick leave, superannuation and entitlements relating to job security,” Ombudsman Sandra Parker said in response to the judgment.

“Sham contracting often has an acute financial and personal impact on workers who are already in low-paid positions.

Ms Parker warned that “employers should be on notice that the Fair Work Ombudsman will take the strongest possible enforcement action when we find instances of sham contracting occurring”.

The aged care sector is bracing for a royal commission this year that will explore the quality and safety of patient care.

A preliminary hearing is to be held on 18 January 2019, after which time it should be determined when public hearings will take place. The commission is required to release its interim report by 31 October 2019, and its final report by 30 April 2020.

Sham contracting costs labour hire firms dearly
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016. 

The two-time Publish Awards finalist has an extensive journalistic career across business, property and finance, including a four-year stint in the UK. Email Adam at [email protected]

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