The Fair Work Ombudsman has commenced legal action against a Pizza Hut franchisee on the Gold Coast for alleged sham contracting activity and underpaying a delivery driver more than $6000.

It is alleged the Pizza Hut operator asked a delivery driver he engaged at his Pizza Hut outlet to provide an Australian Business Number (ABN) and then treated him as an independent contractor. The Fair Work Ombudsman alleges the driver ought to have been engaged as an employee and the arrangements amount to ‘sham contracting’.

A sham contract is when an employer deliberately disguises an employment relationship as an independent contracting arrangement, instead of engaging the worker as an employee. This is usually done to avoid paying employee entitlements such as superannuation, workers’ compensation, leave, and certain taxes.

In other cases, employees are pressured to become independent contractors where they are threatened with being dismissed or are misled about the effect of changing their working arrangements.

It is alleged that the franchisee paid the employee a flat rate of pay of no more than $16 per hour.

However, as an employee rather than an independent contractor, the worker was entitled to receive at least $20.36 for ordinary hours and up to $40.72 for overtime and public holiday work under the Pizza Hut enterprise agreement that applied to the business.

He was allegedly also underpaid a per-delivery entitlement, superannuation and a uniform allowance.

The matter is listed for a directions hearing in the Federal Circuit Court in Brisbane on August 7.

The Fair Work Ombudsman found at least 24 stores and seven franchisees had misclassified their delivery drivers as contractors when they were in fact employees.

The Fair Work Act 2009 protects genuine employees from ‘sham’ independent contracting arrangements and outlines employers’ obligations when establishing an employment relationship.

Sham contracting arrangements are illegal.

• An employer cannot tell an employee that he or she is an independent contractor.
• An employer cannot dismiss or threaten to dismiss an employee in order to engage them as an independent contractor to do the same (or mostly the same) work they performed as an employee and vice versa.
• An employer cannot mislead an employee (or former employee) in order to persuade them to perform the same (or mostly the same) work as an independent contractor.

If you have any questions, or would like more information on this or any other HR issue, please contact us.