Sham Contracting

1. Sham Contracting Cameron Dean - Partner 20 October 2011

2. Overview • Definition • Employees v Independent Contractors • Implications for employers • Recent cases • Getting it right

3. What is sham contracting • Where an employer purports to engage a worker as an independent contractor when, in reality, they are employees • Lend Lease Project Management and Construction (Australia) Pty Ltd v CFMEU [2011] FCA 912

4. Outcome of sham contracting • Results in worker receiving less entitlements than if they were an employee under: • NES • Award • Enterprise agreement

5. Employees v Independent Contractors • Different definitions apply under laws about • employment • tax • workers’ compensation • superannuation

6. Implications for employers • Fair Work Act 2009 (Cth) • sham contracting provisions • civil penalties • employer can also be liable for statements made by employees about sham contracts • Independent Contractors Act 2006 (Cth) • ‘unfair contracts’

7. Office of the Australian Building and Construction Commissioner • Currently three proceedings before the court and 50 investigations nationally relating to allegations of sham contracting • Conducting inquiry into sham contracting in the building and construction industry

8. Office of the Australian Building and Construction Commissioner • Conducting targeted audits of employment records of various Brisbane building sites looking for sham contracting issues • Initial focus on subcontractors engaged on projects funded by the Queensland Government that were affected by work stoppages in late May 2011

9. CFMEU v Nubrick Pty Ltd [2009] FMCA 981 • Terms offered to new workers

10. CFMEU v Nubrick Pty Ltd [2009] FMCA 981 • Terms offered to new workers

11. CFMEU v Nubrick Pty Ltd [2009] FMCA 981 • Contract did not clearly indicate type of arrangement • Court decided they were contracts of employment • Defence applied to employer • manager did not know that contracts were for employment (Test 1) • manager was not ‘reckless’ as to whether the contracts would be for employment (Test 2) • Application dismissed

12. Darlaston v Risetop Construction Pty Ltd & Ors [2010] FMCA 220 • Five employees told they were independent contractors and the employer wanted to make this clearer • Took steps to alter employment agreement • required employees to set up intervening companies • stopped paying superannuation and LSL entitlements • stopped paying workers’ compensation insurance and advised workers they would need their own • increased workers’ pay ($35/hr  $37/hr)

13. Darlaston v Risetop Construction Pty Ltd & Ors [2010] FMCA 220 • Held that employer had misrepresented to employees that they were contractors • Penalties imposed • company - $10,000 • two Directors - $2,000 each

14. FWO v Centennial Finance Services Pty Ltd & Ors [2010] FMCA 863 • Dismissed sales employees and re-engaged them as ‘consultants’ under a contractor agreement • Duties prior to dismissal substantially the same when re-engaged as contractors

15. FWO v Centennial Finance Services Pty Ltd & Ors [2010] FMCA 863 • Prosecutions brought against the employing company, its director and HR manager • True arrangement held to be employment contract • Company, director and HR manager all contravened statutory requirements • director fined $8,800 • HR Manager fined $2,000 • company not fined (in liquidation)

16. ABCC v Rapid Formwork Constructions Pty Ltd & Anor [2011] FMCA 649 • Two construction industry workers were required to enter contracts under which they were • paid an hourly rate • required to get ABNs • provided some protective work clothes • provided a lift to work • employed exclusively by Rapid Formwork • directed as to their tasks, hours of work and meal breaks by Rapid Formwork

17. ABCC v Rapid Formwork Constructions Pty Ltd & Anor [2011] FMCA 649 • The workers • did not pay superannuation contributions and none were paid for them • did not have public liability insurance or accident or sickness insurance • One of the workers • was not provided with annual or sick leave, nor public holidays • was not registered for GST • had some tools provided by Rapid Formwork

18. ABCC v Rapid Formwork Constructions Pty Ltd & Anor [2011] FMCA 649 • Company cooperated with investigation and agreed to back pay a total of $6816 in unpaid wages and entitlements • Company penalties • $21,000 (total) for two statutory breaches • $1500 for breaching the modern building and construction industry award • $1500 for breaching ACT award • Director fined $1500

19. Getting it right • Acting ABC Commissioner Brian Corney on 2 September 2011 • ‘Today's decision should give employers in the building and construction industry cause to review their own practices to ensure they are compliant with Commonwealth workplace laws’

20. Getting it right • Understand the differences between employees and contractors – noting the different legal definitions • Make your contractual arrangements clear - avoid blurring the lines • Ensure compliance in practice • Avoid sham arrangements: if it looks like a duck, swims like a duck and quacks like a duck then it probably is a duck

21. Contact details Presenter: Cameron Dean Position: Partner Direct line: 07 3233 8619 Email: cdean@mccullough.com.au

22. Personal Property Securities Act 2009 (Cth) Kristen Podagiel - Partner 20 October 2011

23. Personal Property Securities Act 2009 overview • What is it? • Who does it apply to? • What will it affect? • What’s the big deal? • What do you need to do before January?

24. What is the PPSA? • Heralded as the most significant change to the law since the introduction of GST • Intention is to create a ‘one stop shop’ for registering interests (security interests) in personal property • Commencing in January 2012 (until we hear otherwise...) • Will almost certainly affect your business

25. Who does the PPSA apply to? • Basically, everyone..... • individuals • companies • Australian • foreign if the assets are located in Australia • partnerships • other legal entities

26. What will the PPSA affect? • Security interests in personal property • A security interest is: • an interest in relation to personal property • provided for by a transaction • that, in substance, secures payment or performance of an obligation • Some things are deemed to be security interests e.g. retention of title • the great debate: does an owner have a security interest that needs to be registered?

27. What is personal property? • basically means all property other than land and fixtures/things attached to land • Certain rights and licences (e.g. water rights and mining tenements) are excluded

28. What’s the big deal? • Some very grey areas.....what risk mitigation strategy will your business adopt? • Legal ownership of PPSA property does not necessarily win out • Wide range of interests that would not usually be regarded as security interests have the potential to be caught by the PPSA (and might need registration) • registration has potential to result in sensitive documents being disclosed

29. Priorities • The PPSA has rules to determine priorities between competing interests • The status of the security interest determines the priority it has • In general, a perfected security interest will have priority over an unperfected interest • registration / possession are key to perfection • Grey area: owner may lose priority if they don’t perfect their interest in their own property

30. Hierarchy of priorities

31. Hire/loan of an asset • I own an asset and I lend it to you for a set term • I no longer have possession of the asset but I have an interest in eventually getting my asset back at the end of the term • but I don’t register my interest (unperfected) • You have secured finance with BankCo – registered against you (perfected) • You go under. BankCo steps in. • Does BankCo has a greater right to my asset than I do?

32. Sale of an asset • I have entered into a contract to buy an asset from you • The contract is not yet complete • I have paid a deposit • but you still possess and own the assets (title hasn’t yet passed) • Should I register my interest in your assets?

33. Key things to consider in preparation • If you don’t have the property in your possession, consider if you have a security interest you need to register (even for intragroup arrangements) • review your standard suite of contracts for PPSA issues • what systems can you implement to make this as painless as possible? • what materiality threshold will you adopt?

34. Summary • PPSA is a fundamental change in law • You need to work out how the PPSA affects your business • What will you need to do differently to deal with the PPSA – before January 2012? • There are still some grey areas to be clarified – what risk are you prepared to wear?

35. Contact details Presenter: Kristen Podagiel Position: Partner Direct line: 07 3233 8757 Email: kpodagiel@mccullough.com.au This document covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. This document is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this document.