Darlaston v Risetop Constructions Pty Ltd, Rummukainen and Rummukainen
The Federal Magistrates Court in Sydney has today ruled that an ACT construction company and two of its directors engaged in sham contracting.
Both directors were fined $2,000 personally and their company $10,000 after admitting they had ‘restructured their business’ in order to avoid paying employee entitlements.
This is the first case in which the ABCC has enforced the sham contracting provisions of the Workplace Relations Act 1996, or its successor, the Fair Work Act 2009.
Commenting on the judgment, ABC Commissioner Leigh Johns said, ‘The ABCC is steadfast in its commitment to enforcing the rule of law. This important action was commenced by my predecessor, then Commissioner John Lloyd, who also took the view that sham contracting is unlawful and should not be tolerated.’
The sham contracting action comes in the context of a broadening of the ABCC’s operations to reflect its powers under the Building and Construction Industry Improvement Act 2005 (BCII Act).
‘The ABCC has commenced more legal proceedings since I took up my appointment in October 2010 than the historical average over the previous three years,” noted Mr Johns. “In addition, the ABCC has extended its capacity to deliver public value by handling claims of underpayment of wages and entitlements, and tackling sham contracting.
‘Our initiatives to extend our regulatory activity have not come at the expense of our traditional suite of compliance activities,’ Mr Johns said.
Today’s decision offers important clarification on operation of laws regulating sham contracting.
The court found that in June 2009 Risto and Mika Rummakainen held a meeting with five of Risetops’ formworkers, the company’s accountant and insurance broker. The Rummakainens told the workers that they intended to restructure their business so that workers would be regarded ‘more openly as independent contractors.’
In an agreed statement of facts, the respondents acknowledged they made misrepresentations to the workers about the status of their engagement, encouraging them to set up one-man companies, enticing them with the promise that they could ‘claim a lot more business expenses from your tax by using a company.’
In handing down her decision, Federal Magistrate Barnes noted:
“A message should be conveyed by the penalties that contracts which are in fact contracts of employment in the building and construction industry (or otherwise) should be correctly identified and not represented as contracts for services having regard to the implication of the sham contracting arrangements associated with such misrepresentations.”
‘There is no excuse for trying to get out of paying legitimate employee entitlements. Legitimate construction firms and the genuine independent contractors who make the building industry thrive have nothing to fear. Other shonky operators are on notice. The ABCC will prosecute those that intentionally engage in sham arrangements,’ said Mr Johns.
Her Honour further accepted the ABCC’s submission that sham contracting is widespread and that penalties “...should be imposed at a meaningful level so as to deter other small to medium businesses from committing similar contraventions in an environment where the practice is agreed to be widespread”.
Copy of decision: 
Darlaston v Risetop Construction Pty Ltd & Ors - 1.6MB
The ABCC is currently conducting a national Inquiry into the incidence and impact of sham contracting in the building and construction industry. For more information see www.shamcontractinginquiry.gov.au