A treasury discussion paper has recommended higher penalties for employers engaging in sham contract arrangements.
The paper examines the rationale behind various deterrents aimed at addressing a practice "disproportionately" affecting vulnerable workers.
The taskforce behind the paper has found that unscrupulous employers engaging in this practice “get an unfair commercial advantage through reduced labour costs, both over law-abiding employers and those engaged in genuine independent contracting arrangements".
The current Fair Work Act penalties in relation to sham contracting are up to $12,600 for an individual and $63,000 for a body corporate per breach. However, the paper indicates that the Coalition Government has already agreed in principle to increase the fines
In addition to questioning the degree to which the current penalties should be increased, the paper also examines whether the existing “reckless” threshold for prosecuting employers should be lowered to a “reasonableness” test.
Currently, there is no clear definition of the term “reckless”, and the onus of proving the employer knew or was reckless rests with the person alleging the breach.
Employers up until now have been able to “escape penalty by demonstrating that they did not know and were not reckless as to whether the contract was a contract of employment rather than a contract for services".
The taskforce, however, is recommending that by changing to a “reasonableness” test, this would remove the high burden of proof required to establish “recklessness”.
Employers should proceed with caution in respect to employing contractors, and seek advice where necessary if there is any doubt that the arrangement could more appropriately deemed to be employer/employee.
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