High Court decision protects employees against ‘sham’ contract arrangements

The recent High Court decision of Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45 has proved a timely reminder that employers must be cautious about the characterisation of “independent contracting” relationships.

In its decision, the High Court found that employers cannot avoid the sham contracting provisions of the Fair Work Act 2009 (Cth) by using third parties, such as labour-hire companies.

High Court Decision

In Quest, two housekeepers had been working as employees of Quest South Perth Holdings Pty Ltd (“Quest”) for several years.

Quest attempted to convert the housekeepers into independent contractors by providing them with “contractor applications” and moving them into contractor roles with the third-party labour hire company Contracting Solutions Pty Ltd (“Contracting Solutions”).

Quest made the representation to the housekeepers that they were performing work to Quest as independent contractors of Contracting Solutions, under a contract for services. The housekeepers then went back to work for Quest in “the same manner as they had always done”.

The High Court found that there was an implied contract of employment between Quest and the housekeepers. Accordingly, the misrepresentation by Quest was within the scope of s 357 (1) of the Fair Work Act which prohibits sham arrangements.

The case has been listed in the Federal Court for a penalty hearing, where Quest may be liable for penalties of up to $54,000 per breach. We will keep you informed of further developments in this regard.

Importance for employers

The High Court decision offers greater protection to employees by extending the reach of the sham contracting provision to employers who introduce a third party into the working arrangement.

The decision is a reminder for employers to exercise caution when engaging independent contractors, in particular concerning statements made to those contractors about their employment status.  Understanding whether an individual is an employee or independent contractor is not a simple and straight forward exercise. If one of your contractors has some or all of the features of an employee, it is likely that you need to review your arrangements. You cannot make an employee a contractor by calling them a contractor.

If you have a query about your contractor arrangements, or the minimum entitlements you may owe as an employer, please contact Surry Partners Lawyers.


Peter English
(02) 9318 6411


Angus Ferguson
(02) 9318 6415


April 2016