What do you know about section 358 of the Fair Work Act?
Many employers don’t realise that the Fair Work Act 2009 (Cth) (FW Act) places strict limits on converting employees to contractors. Under section 358, it’s unlawful for an employer to dismiss an employee (including through redundancy) and then re-engage them as an independent contractor to perform substantially the same work. This provision is often overlooked, but it has been actively enforced.
In Butlin v ACA Home Improvements Pty Ltd & Anor [2019] FCCA 2145, a full-time employee was made redundant due to an alleged business downturn. Soon after, the company offered Mr Butlin the chance to return as a contractor, at a lower rate.
Mr Butlin challenged the arrangement, arguing that there was no genuine downturn and that the redundancy was a cost-cutting measure. The Court agreed, finding that the company had breached section 358 of the FW Act. Both the business and its director were ordered to pay over $43,000 in lost wages, despite the fact that Mr Butlin never accepted the contractor role.
Rehiring a former employee as a contractor, no matter how practical or well-intentioned, can expose a business to significant legal and financial risk if the engagement is essentially the same role under a different label. Before restructuring or converting roles, it’s critical to seek advice on whether the proposed arrangement would withstand scrutiny under the FW Act.
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