Sham contracting – when can HR managers be personally liable?

The recent decision of Fair Work Ombudsman v Centennial Financial Services [2011] FMCA 459 has highlighted that human resource managers can be held responsible for sham contracting practices, even if they are following the instructions of senior management.

Federal Magistrate Cameron imposed a fine of $3750 against the HR manager for his role in the company’s sham contracting practices.

The former HR manager unsuccessfully argued that he should not be held responsible for the company’s sham contracting practices because:

(a) he held a minimal position within the company and that any decision concerning the changing of worker’s employment status from employees to contractors to avoid paying relevant wage and other entitlements was a decision that did not involve his direct input; and

(b) he had been effectively been put in a position where he had no choice but to carry out the wishes of the company’s owner in relation to the change of status and as a result should not be held liable for the sham contracting practices that followed.

In making his decision, Federal Magistrate Cameron acknowledged that although the company owner was the “controlling mind” of the business and instigator of the sham contracting practices, the HR manager was responsible for implementing the policy.

Federal Magistrate Cameron determined that by virtue of his position, the HR manger was responsible for ensuring the company complied with relevant workplace relations law, and accordingly was “centrally involved” in the unlawful activity. Federal Magistrate Cameron said that at a minimum, the HR manager should have attempted to advise the company about its legal obligations to employees.

Lessons for HR Managers

This case demonstrates that HR managers:

(a) may be personally responsible for their company’s compliance with workplace relations law and can be held liable and fined for implementing sham contracting practices;

(b) cannot rely on the fact they were merely carrying out the instructions of senior management to avoid personal liability in sham contracting proceedings; and

(c) should advise their employer of the operation of relevant workplace relations law concerning sham contracting practices and legal obligations owed to employees.

For more detailed information about how this may impact on your business, please contact Belinda Winter, [email protected] of the workplace relations team at Cooper Grace Ward Lawyers.