BlandsLaw - Blog posts from compliant employment contracts
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Recognising a ‘sham’ contract

A sham contract refers to an agreement in which an employer attempts to disguise an employment relationship as an independent contractor arrangement. This is done with the intention ofavoiding paying employee entitlements such as superannuation, workers compensation, leave, and certain taxes. Doing this not only significantly reduces costs, but also eliminates an employer’s vicarious liability for the wrongdoing of itsemployees.

However, employers should think twice before presuming they have found a loophole in the system;these arrangements are punishable under the sham contracting provisions of the Fair Work Act 2009, and companies can face a hefty fine of up to $54,000 in the event of a breach. In addition, employers may also be liable for underpayment claims, payroll tax, superannuation payments and be exposed to unfair dismissal claims.

In a recent case heard by FWC[1], it was determined that a worker had access to unfair dismissal after it was found he wasmisrepresented as an independent contractor when in reality he was an employee.The FWC stated that the employer

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In addition to the well-publicised anti-bullying measures introduced on 1 January 2014, there are several other changes to the Fair Work Act 2009 that also came into effect on 1 January and have implications for employers.

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The Fair Work Ombudsman (FWO) has recently commended McDonald’s Australia for conducting a self- audit on its employees’ wages and other entitlements, leading to improved workplace relations for the 90,000-strong restaurant chain.

McDonald’s had agreed to participate in the self-audit following an unsuccessful attempt to have an enterprise agreement approved by Fair Work Australia. Although the enterprise agreement was approved on appeal, McDonald’s agreed to enter into a Deed to achieve two compliance activities:

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We are continually advising employers to have thorough and compliant employment contracts in place with their employees. In addition we advise frequently on the need to have policies in place that deal with many aspects of daily working life including bullying, harassment and, one of the more important ones…occupational health and safety. We are often asked by employers “Why do I need these? Can’t people just use their common sense?” Our reply, all of the time is…”NO, because common sense isn’t common enough!”

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