Labour-hire companies penalised for sham contracting and underpayments

Two labour-hire companies that provided workers exclusively to a major home care company in Adelaide have been penalised a total of more than $200,000 over a sham contracting scheme that resulted in underpayments and significant hardship for workers.

Easttrac Pty Ltd and Klemtrac Pty Ltd – which formerly provided labour to Care Providers Pty Ltd, trading as ESAR Home Care – have been penalised $125,874 and $77,112 respectively, in the Federal Circuit Court. In addition, two individuals, Leo Welch and Peter Wallis, have been penalised in Court for their involvement in the sham contracting activity and other contraventions.

The matter involved Easttrac and Klemtrac contravening the sham contracting provisions of the Fair Work Act by each recklessly misclassifying two employees as independent contractors and paying them amounts that did not meet their minimum lawful entitlements.

The workers included two personal care workers and two who performed cleaning and domestic duties. The underpayments left the two personal care workers struggling to afford basic living expenses.

Easttrac, Klemtrac, Welch and Wallis admitted in Court that they were responsible for the contraventions. The Fair Work Ombudsman initially also made allegations against Care Providers Pty Ltd but those allegations were not proceeded with. Care Providers offers in-home personal care and domestic assistance services to elderly and disabled persons in Adelaide under contracts the company holds with local councils, government agencies and non-government organisations.

The Fair Work Ombudsman first investigated the matter after receiving a request from a firm of liquidators to investigate the practices of Easttrac, Klemtrac and Care Providers.

In his judgment on the matter, Judge Timothy Heffernan found that the sham contracting activity by Easttrac and Klemtrac was the result of a “strategic decision made substantially for the purpose of saving money” to engage workers as independent contractors, without seeking legal advice as to the proper classification of the workers.

Judge Heffernan found Mr Welch and Mr Wallis “were in positions of senior management and directly involved in the decisions to engage the workers as independent contractors” and that it “was those decisions that led to the underpayment contraventions”.

The strategy involved Easttrac and Klemtrac entering into independent contracting agreements with each of the four affected workers and supplying them to Care Providers to perform work for its clients. However, the correct classification for the workers was as employees.

As a result, Easttrac and Klemtrac underpaid their employee entitlements under the Social, Community, Home Care and Disability Services Award, including allowances, superannuation, leave entitlements and penalty rates for overtime, weekend and public holiday work. The four workers were underpaid a total of $8354 between February and September 2015. They have been back-paid in full.

Workplace laws relating to record-keeping, pay slips, entering into written part-time work agreements and making unlawful deductions were also contravened.

Judge Heffernan said: “Whilst the amounts of underpayment and non-payment do not appear at first blush to be large, the contraventions had a significant impact on the employees and occasioned them financial stress and worry.”

“This made it especially difficult and stressful because she had four children living at home at the relevant time”, Judge Heffernan said. “There were occasions when she only fed the children and not herself because of lack of money. There were times when she could not afford to pay utility bills and was forced to borrow money from her parents.”

Judge Heffernan said the penalties imposed should deter others from similar conduct.


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