• Courts target sham contracting and underpaying

    Employers have been put on notice about hiring foreign workers and underpaying them.

    CCIQ Senior Employer Assistance Advisor Jason Wales said courts have signalled they will be tough on sham contracting and underpaying workers.

    Companies and their Directors are liable to heavy penalties.

    The Federal Circuit Court imposed fines of more than $250,000 for a serious breach of employment obligations in a recent Victorian case.

    The court found that the two workers had little understanding of Australian employment laws and their employment entitlements.

    The employer used this to his advantage and had deliberately underpaid them.

    The recent decision of the Federal Circuit Court imposed significant penalties on two companies, as well as their sole director, as a result of proceedings brought by the Fair Work Ombudsman for contravening the Fair Work Act 2009.

    Two Indian workers paid upfront ‘training fees’ of more than $2000 to an IT businessman based in Melbourne. The workers were led to believe this would lead to employment with his two training services companies.

    However, he did not provide the workers with proper accredited training and did not properly pay them. He alleged that the workers were independent contractors or alternatively were volunteering “to get local work experience”, and hence he did not need to pay them.

    The Fair Work Ombudsman conducted an investigation and then commenced legal proceedings against the businessman and his two companies in the Federal Circuit Court.

    The court found that the two workers had little understanding of Australian employment laws and their employment entitlements. The court found that he had used this to his advantage and had deliberately underpaid them.

    In determining the applicable penalties, the court found:

    • The contraventions were deliberate given that the companies had been subject to a Fair Work Ombudsman audit in 2011. That audit had put the companies and the sole director squarely on notice of their employment obligations.
    • There was no remorse or contrition. In that regard, the sole director had attempted to deregister the companies during the proceedings, presumably to avoid liability. He also initially admitted to contraventions by the companies but later denied them when he was joined to the proceeding.
    • The sole director was nothing more than the alter ego of the companies and attempted to use them as a shield. As such, he was involved in the companies’ contraventions.
    • There was a need to deter the sole director from engaging in future similar contraventions, as well as to discourage other directors from also attempting to avoid liability behind a corporate structure.

    The Court ordered that the man’s two companies pay:

    • $160,000 in penalties (one company was fined $40,000 and the other $120,000);
    • $16,000 in outstanding wages; and
    • $5,144 for dismissing a worker in breach of adverse action provisions when the worker complained about not being paid correctly.

    The court ordered that he pay $35,000 for engaging in sham contracting, underpaying workers and not keeping proper employment records.

    He attempted to de-register the two companies during the proceedings to try to avoid having to pay the workers. However, the court held that the two companies were nothing more than his “alter egos” which he attempted to use “as a shield for his own conduct”.

    The court indicated there was a need to deter employers from “attempting to use the corporate veil to avoid responsibility for workplace obligations where they have been the operating mind of the companies when conducting the breach”.

    CCIQ Viewpoint

    The decision is a timely reminder that individuals involved in contraventions, including directors, can be expected to face prosecution and may personally face fines if they are involved in or responsible for breaches of applicable employment obligations.

    CCIQ’s employer assistance team can help you understand your employment obligations and correct pay rates for employees, phone on 1300 731 988 or email

    DISCLAIMER: This document is an information source only. Despite our best efforts, CCIQ makes no statements, representations or warranties about the accuracy or completeness of the information and disclaims responsibility for all liability for all loss or damage you might incur as a result of the information being inaccurate or incomplete in any way, and for any reason. The information contained in this document is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.

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