Young Australians are warned to be wary of “sham contracting”, a tactic used by bosses to save money, after the exposure of a “shocking” underpayment scandal at Pizza Hut.
The Fair Work Ombudsman announced on Friday that 24 of 34 Pizza Hut franchises it recently audited were in breach of workplace law.
At two franchises — one in Sydney and one in Mango Hill, Queensland — drivers were paid between $5.70 and $8 on a per-delivery basis while also being made to cover fuel and vehicle operating costs.
Seven of the 24 had classified their drivers as independent contractors rather than employees, with more than $12,000 in underpayments owing. And 32 per cent of the 170 workers looked at as part of the audit were under the age of 24.
Bianca Mazzarella, workplace lawyer at McDonald Murholme, told The New Daily the $5 hourly rates were “shocking”, but noted that the problem of “sham contracting” goes beyond hourly rates and is “not just restricted to the takeaway industry”.
Sham contracting occurs when a worker is pushed into an independent contracting relationship where they are classed as a contractor and paid an ‘all in’ sum inclusive of tax, leave and superannuation, despite being directly employed by the business.
These workers may not be covered by workers’ compensation insurance. It is even more of a problem for low-paid workers because they cannot afford to have unpaid leave, fall behind in taxation and are not able to make their own superannuation contributions.
“I’ve seen it before in construction, retail businesses, it’s fairly widespread. And young people are targeted because they are often unaware of their workplace rights, also people from overseas as well,” Ms Mazzarella said.
“Employers do it to save money. If you make somebody a contractor, you don’t have to pay them superannuation, annual leave, sick leave, bereavement leave, and the employee thinks they are not protected by Fair Work Act awards so they’re not aware of their rights.”
Sham contracting breaches the Fair Work Act with the exception that the employer was not aware of and was not reckless of the employment status.
Warning signs include being told to apply for an Australian Business Number (ABN) despite your work being controlled entirely by your boss, who provides your equipment and does not delegate your tasks to anyone else.
The Australian Tax Office says there are many myths about contracted workers, including that it becomes legal if the worker agrees to it; that sham contracting is allowed for short-term jobs; and that there is such a thing as an 80/20 rule that protects employers.
Pizza Pan Group, which became the master franchisee of Pizza Hut Australia in September, issued a statement of Friday saying it is working with all its franchisees to improve workplace standards, and takes its responsibilities very seriously.
Chief executive Lisa Ransom, a former McDonalds executive, noted that one of the franchisees found to be underpaying drivers, Romaro Holdings, is no longer a franchisee and Pizza Hut has taken over management of the store.
“Since acquiring the business we have worked directly and proactively with all franchisees and the Fair Work Ombudsman and engaged the services of experts in the area of industrial awards,” Ms Ransom said.
She said the company was also working with franchisees to ensure all the appropriate tools are in place for them to calculate rates of pay, and facilitate access to the Fair Work Ombudsman online training tools.
‘Deliberate and systemic behaviour’
A spokesman for the Fair Work Ombudsman told The New Daily that independent contracting can be a “genuine pathway” for Australians who want to be self-employed, but warned that misclassification of employees has been a “persistent issue within a number of industries”.
“We find that there are a lot of innocent or mistaken arrangements relating to contractors. The majority of misclassification matters are resolved by the Fair Work Ombudsman through voluntary compliance and working with employers to assist them to understand how to comply with the law,” the spokesman said.
“However, where the misclassification of an employee as an independent contractor is deliberate, this is sham contracting and is against the law.
“The Fair Work Ombudsman has found cases of sham contracting which are exploitative, involving very serious, deliberate and systemic behaviour used to gain an advantage over competitors and resulting in large underpayments. We also find that cases of sham contracting often involve vulnerable workers, including overseas workers and young workers.”
A total of $6,300 in fines have been issued to Pizza Hut franchisees and the ombudsman is also considering potential litigation against one franchisee.
What you can do
If you think you are unfairly employed as an independent contractor, you can:
• Consult an employment lawyer
• Contact your union
• Read the ATO’s Employee or contractor online tool
• Read the ATO’s definition of an employee
• Call the Fair Work Ombudsman on 13 13 94