Record fine for sham contracting

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A NSW transport business, Happy Cabby, has been slapped with a record fine of $286,704 for displaying “wilful blindness” regarding workplace laws. Between January and November, 2011, seven employees of the business were underpaid $26,000 due to sham contracting activities.

The seven shuttle bus drivers were misclassified as independent contractors instead of employees, despite the fact that Happy Cabby owned the shuttles that the workers drove, had a high degree of control over their work, and determined how much they would be paid. This meant that the drivers were paid fixed rates of pay per run rather than a wage, which led to underpayments of a range of employee entitlements, including minimum wages and penalty rates for weekend, overtime, public holiday and early/late work.

Happy Cabby persisted in misclassifying, and underpaying, the employees even after the Fair Work Ombudsman (FWO) issued the business with a ‘Letter of Caution’ in January 2011 (prior to this they were correctly classified as employees). These underpayments have mainly since been rectified.

The Newcastle-based company, which transports passengers from Newcastle to Sydney airport, was fined $238,920 and the operator and sole director, Graeme Thomas Paff, was fined $47,784. The fines are a record for in terms of Fair Work Ombudsman legal action in NSW.

“Based on this history of similar previous conduct I accept that high penalties are appropriate in this case for the sham contracting contraventions as the respondents were put on notice, on multiple occasions, of the differences between an employment and independent contracting relationship,” Judge Driver, of the Federal Circuit Court in Sydney, said.

“The company and Mr Paff could have been in little doubt of the true legal position following the AAT proceedings, and any lingering doubt should have been removed by the ‘Letter of Caution’. Their refusal thereafter to change their position was deliberate, based on wilful blindness.”

A spokesperson for the FWO, Natalie James, warned that they looked beyond the legal documentation to discover the true situation in cases where they suspected sham contracting. “There are serious consequences for business operators who ignore warnings to comply with workplace laws and disregard employees’ basic lawful entitlements,” she warned.


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