Clean Up Your Act: FWO Condemns Sham Contracting in the Cleaning Industry

Published September 09, 2019 (last updated July 17, 2020)

News that the Fair Work Ombudsman is cracking down on sham contracting has shone a spotlight on the practice. It’s an important test case in the ‘cleaning’ industry and could have widespread repercussions on other industries who regularly employ independent contractors in the the so-called ‘gig economy’.

Fair Work Ombudsman Sandra Parker said the agency is cracking-down on sham contracting arrangements after conducting a sham contracting investigation. Fair Work Inspectors made a series of surprise audits last week at AAMI Park in Melbourne, ANZ Stadium in Sydney and GIO Stadium in Canberra Ms Parker said.

The Fair Work Ombudsman has previously audited cleaning operations at Melbourne’s Marvel (formerly Etihad) Stadium and the MCG due to similar concerns regarding workplace law breaches. The MCG audits resulted in a $132,217 penalty against the MCG’s head cleaning contractor.

Most recently, Ms Parker said Fair Work Inspectors visited each stadium at the end of three Round 25 NRL games: Rabbitohs vs Roosters (ANZ Stadium), Storm vs Cowboys (AAMI Park) and Raiders vs Warriors (GIO Stadium):

“Fair Work inspectors visited ANZ Stadium, AAMI Park and GIO Stadium last week due to concerns about sham contracting, where employers misclassify workers as independent contractors to avoid paying entitlements like overtime and annual leave.”

At the stadiums, inspectors interviewed cleaners and supervisors, as well as photographed the venues, to gain a better understanding of the employment conditions the cleaners are working under.

Inspectors also reviewed employment records on site at the stadiums as part of gathering evidence for the investigation.

The regulator conducted the audits in response to intelligence suggesting that cleaning companies that are contracted to clean stadiums may not be compliant with Australia’s workplace laws.

“Fair Work Inspectors will now analyse the evidence they have gathered to check if the cleaning contractors are meeting their lawful obligations under Australia’s workplace laws. If we identify non-compliance, our first priority will be arranging back-pay for affected workers and we will then consider our compliance and enforcement options,” Ms Parker said.

“Sham contracting is a widespread problem in the contract cleaning industry. We will take strong action if companies are avoiding their lawful obligations to their workers by asking them to register as independent contractors instead of paying them as employees and providing them leave and other entitlements under the Cleaning Services Award 2010,” she said.

Under the Fair Work Act, the ‘boundaries’ that may infringe into a sham contracting arrangement address what employers explicitly cannot do.

Employers cannot:

  • tell an employee that he or she is an independent contractor
  • dismiss or threaten to dismiss an employee in order to engage them as an independent contractor to do the same (or mostly the same) work they performed as an employee and vice versa.
  • mislead an employee (or former employee) in order to persuade them to perform the same (or mostly the same) work as an independent contractor.

Employsure explains sham contracting as, “Deliberately disguising an employee/employer relationship as an independent contracting arrangement. Sham contracting frequently occurs in situations when companies need labour, but don’t want the responsibility of paying for employee entitlements such as leave, workers’ compensation and superannuation.”

If you are hiring independent contractors on an ongoing basis, Employsure encourages employers to seek expert advice.

For more information on the difference between a contractor and an employee, Employsure has a guide available here: Employee Vs Contractor.

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