Company to pay $100,000 in penalties after misclassifying a “vulnerable” employee as an independent contractor

Published 17 October 2016

The Federal Circuit Court of Australia ordered a company to pay $100,000 in pecuniary penalties and the sole director to pay $24,000, after a British visa-holder was misclassified as an independent contractor and underpaid over $7,800 in wages.

Beckitt was a British national who arrived in Australia in February 2013 and commenced work with the Australian Sales and Promotions Pty Ltd (ASAP) on 6 March 2013. Beckitt was erroneously told he was being engaged as an independent contractor rather than a casual employee and consequently, was not paid minimum rates or casual loading and was told by ASAP that he was required to pay certain expenses.

Beckitt’s starting daily rate of pay was $50 plus commission less PAYG tax, public liability insurance and fees. He was promoted to team leader where he earnt $67 per day plus commission, less the same deductions. The total underpayment amount was $7,853.40 as a result of ASAP’s failure to pay Beckitt the minimum wages under the National Minimum Wage Order and casual loading and $465.30 was spent on public liability insurance and fees that Beckitt should not have been required to incur.

The judge ruled that ASAP had breached sections 293, 325, 357 and 535(1) of the Fair Work Act 2009 (Cth) for failing to pay minimum wages and casual loading, representing Beckitt as an independent contractor rather than a casual employee, requiring Beckitt to spend money on insurance and fees and failing to keep employment records. Further, Ainsworth, the sole director of ASAP, was involved in these contraventions and liable under section 550 of the Fair Work Act 2009 (Cth). The judge found Ainsworth was aware that a person in Beckitt’s position ‘would ordinarily be characterised as an employee’.

The parties accepted Beckitt was an employee rather than an independent contractor for the following reasons:

  • He had no sales experience and was required to attend training provided by ASAP;
  • He attended ASAP’s premises at the start of the working day;
  • He was required to wear specified clothing;
  • He was required to work set hours;
  • He was subject to directions and supervision by ASAP;
  • He was provided equipment by ASAP to perform his role;
  • He gave instructions to team members on behalf of Ainsworth and reported to Ainsworth regarding progress;
  • He was paid on a weekly basis;
  • He was required to follow instructions in a document he received upon completing the training provided to him by ASAP;
  • He did not create invoices;
  • He could not delegate duties; and
  • He did not provide services to any other entity during his employment with ASAP.

In the past, ASAP had been the subject of other Court proceedings as it had treated five other employees as independent contractors rather than employees and failed to pay minimum wages, casual loadings and Saturday loadings to those employees. In addition, they failed to keep employment records. This proceeding occurred prior to Beckitt’s engagement and so ASAP knew the possible consequences of confusing employees as contractors at the time Beckitt was employed.

Further, as Beckitt had only recently arrived in Australia before he commenced employment with ASAP, he was ignorant of the relevant laws and was in a position of vulnerability. The judge believed ASAP would have been aware of this and recognised a need for general deterrence given the reasonably high prevalence of individuals such as Beckitt in Australia.

The judge deemed the contraventions by ASAP were deliberate as there was no evidence that ASAP was not aware Beckitt should have been issued a contract of employment rather than a contract for services. Its intention was to hold the power of an employer while enjoying the financial benefit of paying Beckitt as a contractor.

The judge noted that although ASAP rectified the underpayments prior to the commencement of the proceedings, this did not provide evidence of contrition and merely accepted that it had transgressed and did not amount to an intention not to repeat similar conduct in the future.

The judge ordered a penalty amount of $100,000 be paid by ASAP. The original penalty amount was $121,380 after a 15% discount was applied to $142,800, however the judge believed this to be excessive.

The judge ordered a penalty amount of $24,000, reduced from $24,276 for convenience, be paid by Ainsworth.

Read the full decision here

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