HR Manager held personally liable for sham contracting
Human resource managers may find themselves personally liable with company directors for entering into sham contracting arrangements.
In a recent decision by FM Cameron in the Federal Magistrates Court, a former HR Manager from Centennial Financial Services Pty Ltd was found to be liable for sham contracting together with the owner/director. In the case, the owner of the business decided to change the employment arrangements of nine of the company’s employees to independent contractors after encountering financial difficulties.
In the proceedings before FM Cameron, the Fair Work Ombudsman (FWO) alleged that while the owner was the ‘controlling mind’ of the company, the HR Manager was nevertheless ‘centrally involved’. The FWO argued that the HR Manager held himself out to be a HR professional with ‘considerable experience in the field’ and added that, whilst the contraventions might not have been wilful, they were committed with knowledge that the employees would be deprived of certain entitlements.
The HR Manager’s argument that he had ‘merely been following the instructions’ of the owner of the company and that his position was a ‘mere title with no real input into business decisions’ was not accepted by the Court.
FM Cameron accepted that the HR Manager was ‘overborne by [the owner] and exercised no judgment’ but that he was nonetheless required, as a HR professional, to ‘be aware of, and at least [attempt] to give advice’ on the company’s obligations under workplace relations legislation.
Consequently, the HR Manager was order to pay $3,750 and the owner of the business $13,400.
Key Points: Changing a workers’ classification from an ‘employee’ to an ‘independent contractor’ without changing the substance of their employment duties and conditions is likely to be sham contracting. As this case highlights, both company directors and HR Managers may be held liable. Ensuring that you get the employee or independent contractor determination right has never been a straightforward exercise, but it has also never been more important.
Lisa Aitken is an accredited specialist in workplace relations law and the principal of Aitken Legal, a law firm specialising in employment law for employers. www.aitkenlegal.com.au. The information in this column is intended as a guide only. Liability limited by a scheme approved under professional standards legislation.
