Under the Fair Work Act 2009, an employer cannot:
- knowingly make a false statement to persuade or influence an employee to become an independent contractor
- dismiss or threaten to dismiss an employee to re-engage them as an independent contractor to do substantially the same work
- misrepresent an employment relationship or proposed employment relationship as an independent contracting arrangement.
An employer can defend a charge of misrepresentation if they are able to prove that at the time the representation was made, they did not know that the contract was a contract of employment, rather than a contract for an independent contractor. They must also be able to prove that they were not reckless as to whether the contract would be a contract of employment, rather than a contract for an independent contractor. Proof of this may include if the employer can show that they relied on advice from a lawyer or employer association.
An employer should be wary that they are not putting their business at risk by engaging in sham contracting arrangements. Although there are many circumstances where it is lawful for a business to engage an independent contractor, the law is there to protect employees from being treated as an independent contractor when they should in fact be regarded as an employee.
Employers should review any arrangements they have in their business with ‘independent contractors’ and determine if they are genuine or not. Just because workers have ABNs or provide an invoice for payment, does not of itself make them independent contractors. Labelling someone as an independent contractor or getting them to sign a contract which states that they are an independent contractor does not necessarily make them one either. There are multiple factors that are taken in to consideration and it is recommended that employers seek legal advice if they are unsure on the type of employment relationships that exist within their business.