Federal Circuit Court says company has case to answer for underpayment by subcontractor.

A company has failed to have a case summarily dismissed by claiming that it was not responsible for underpayment to workers by its subcontractor. The case was brought before the Federal Circuit Court by the Fair Work Ombudsman, and involves a South Australian company, Integrated Trolley Management (‘ITM’), one of many companies around Australia engaged to collect trolleys at various supermarkets. ITM subcontracts its services to Coastal Trolley Services (‘CTS’), who in turn subcontracts to South Jin Pty Ltd (‘South Jin’), the employer of the underpaid workers. The claim was made against South Jin as the employer and against CTS for accessorial liability.

The claim relates to 49 separate employees employed over five sites, and to various workplace obligations. The Court took into account that the head contract between ITM and CTS contained a provision that CTS was to abide by award rates, conditions and entitlements. In its agreement with South Jin, CTS paid an ‘effective hourly rate’ and provided a schedule of roster hours for each of the sites.

In the application for summary dismissal, CTS and its Directors argued that there was no reasonable prospect of the FWO establishing they were accessories to the underpayment by South Jin. Judge Lindsay rejected this argument and stated that the extent of their knowledge and/or involvement in the underpayments would depend on the findings at trial, and the application for summary dismissal was refused.

This case will potentially have significant ramifications for companies subcontracting to third parties as, depending on the decision, it may imply an onus on the company to ensure workplace laws are not being breached by its subcontractor.

The case has been listed for hearing on 10 February 2014 and we will update you further once judgement has been delivered.

Christine Broad, Solicitor, BlandsLaw

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net