'Sham' contract designed to avoid employment obligations, says company owner
The Fair Work Commission (FWC) recently dealt with a case where a worker claimed he was an employee despite working through his own company and intermediary labour hire firms.
He argued the contractual arrangements were designed to help the organisation avoid its employment obligations.
The case raised important questions about employment relationships in modern workplaces, particularly when work is performed through corporate structures and multiple contracting arrangements.
The dispute involved a gambling organisation that needed specialised engineering support for a business separation project.
The worker, who operated through his own company as an operational support engineer, started providing services after responding to a Seek advertisement in August 2023.
Initially, he worked through DXC Enterprise Australia Pty Ltd (DXC), which had an agreement with the gambling organisation to provide engineers for the project. In May 2024, he was directed to sign a new agreement with a different intermediary company, Hudson RPO (Aust) Pty Ltd (Hudson RPO).
The arrangement ended on June 28, 2024, when the organisation's general manager of technology informed the worker his contract wouldn't be extended, citing that the worker was "outside of our risk appetite" following a fit-for-work check by Hudson RPO.
The worker's company received significant compensation for his services - $1,000 plus GST per day, equivalent to approximately $250,000 annually. The gambling organisation paid Hudson RPO a higher rate of $1,086.50 plus GST per day, showing the commercial margin involved in these arrangements.
The worker had incorporated his company in 2022, becoming its sole owner, director, and company secretary. The company was registered for GST and regularly submitted business activity statements to the Australian Taxation Office.
The case was decided under pre-August 2024 laws, as new employment status provisions started after this dispute ended. The Commission applied recent High Court precedents from the Personnel Contracting and Jamsek cases.
The worker argued strongly that the contracts with DXC and Hudson RPO were "shams" designed to help the gambling organisation "evade the responsibilities under the Fair Work Act."
He pointed out that he worked exclusively under the gambling organisation's direction and had minimal contact with either intermediary company.
"[The worker] performed duties exclusively for [the employer] from September 2023 to 28 June 2024. I accept [the employer] arranged for [the worker] to perform duties through a contract with Hudson RPO instead of DXC Enterprises on around 21 May 2024."
The Commission rejected the sham contracting arguments, finding instead that these were legitimate business arrangements. As stated in the decision:
"I am not satisfied the relevant contracts represent a façade, misrepresentation, or falsehood. I consider the contracts represent reasonably standard commercial arrangements that can be generally described as [the employer] contracting with DXC Enterprises and Hudson RPO to hire labour to be used on specific projects."
The Commission found that operating through a corporate entity significantly affected the worker's status. It noted:
"[The worker] has led no evidence regarding the arrangements that were in place between [his company] and himself. It is not clear whether [his company] paid [the worker] as an employee or if [the worker] received some benefit in terms of taxation through the involvement of a corporate entity."
The Commission ultimately determined:
"I find [the worker] was not an employee of [the employer] and hence that [the worker] was not 'dismissed' within the meaning of s.386 of the FW Act."
The case highlighted the importance of contractual arrangements in determining employment status, particularly when work is performed through corporate entities, and demonstrated how courts currently prioritise written agreements over subsequent conduct in these determinations.
