Shamming it up – Cleaners misclassified as independent contractors back paid $1.9 million

Earlier this month, the Fair Work Ombudsman (FWO) announced that cleaners working at hotels run by Oaks Hotels & Resorts Limited (Oaks), a major operator of more than 43 properties across Australia, have been back paid a total of $1.9 million.

This significant back payment followed a FWO inquiry earlier this year which resulted in Oaks and its cleaning contractor (and related company), Housekeepers Pty Ltd (Housekeepers) entering into enforceable undertakings with the FWO. The enforceable undertakings required a number of commitments from the companies, including classifying workers correctly, paying them the right wages and rectifying past underpayments.  

Internal audits conducted to meet the obligations of the enforceable undertakings revealed that 1502 cleaners at more than 40 hotels had been underpaid.

At the time the hotel cleaning services inquiry was launched, Housekeepers was engaging workers as independent contractors and paying them on a per-room rate, rather than paying them wages as employees. As a result, the workers were not receiving their correct entitlements.

The back-payment from Oaks and Housekeepers is just the latest in a string of recent developments concerning independent contractors, the supply chain and employee entitlements.

Last year the High Court handed down its decision in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45, which found that two housekeepers were subject to “sham contracting” when their employer misrepresented their arrangement as one of independent contracting when in fact the cleaners were employees.

Also in 2015, the FWO released the results of its inquiry into the labour procurement arrangements of the Baiada Group, which operates in the poultry industry. The inquiry found significant non-compliance with workplace laws and complicated contracting and sub-contracting arrangements. The FWO said in its inquiry that one of its objectives was to discover who in the supply chain was responsible for the exploitation of workers.

The FWO has recently demonstrated an increased willingness to look not just at the true employer, but who in the supply chain sets the price of labour and benefits from the labour procurement arrangements.

In her statement on the hotel cleaners inquiry in May 2016, Natalie James (the current Fair Work Ombudsman) said, “It is a failure not only of legal responsibility, but moral and ethical leadership, for large corporates to seek to ‘contract out’ the wages and conditions of their workforce without ensuring good governance and compliance.”

Ultimately, the above examples of sham contracting and supply chain non-compliance should serve as warnings to businesses that ‘contract out’ their workforce. Where contracting arrangements are in place, businesses should take steps to ensure that their contractors are classifying their own workers correctly and paying employment entitlements where owed. Failure to do so could result in difficulties for both the business and the contractor.

Shane Koelmeyer is a leading workplace relations lawyer and Director at Workplace Law. Workplace Law is a specialist law firm providing employers with legal advice, training and representation in all aspects of workplace relations, employment-related matters and WH&S.

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