Sham contracts

Sham contracting is where an employer tries to disguise an employment relationship as an independent contracting relationship.

This may be done to avoid having to give the employee their proper entitlements.

Sometimes, employers threaten employees with dismissal if they don't agree to become contractors. This is illegal.

Under the Fair Work Act 2009, the employer cannot:

  • disguise an employment relationship or proposed employment relationship as an independent contracting arrangement
  • dismiss or threaten to dismiss an employee to re-engage them as an independent contractor
  • knowingly make a false statement to persuade or influence an employee to become an independent contractor.

Penalties

Fair Work Inspectors may take an employer to court if they find the employer is involved in sham contracting.

If you're in the building and construction industry, Australian Building and Construction Commissioner (ABCC) Inspectors may take court action for sham contracts.

The courts may order the employer to pay a penalty of up to $33,000 per contravention.

This means, if the employer is involved in more than 1 sham contracting arrangement, they may have to pay a penalty for each arrangement.

If the employer dismisses or threatens to dismiss an employee to re-engage them as an independent contractor, the Fair Work Inspector can apply to the courts to:

  • stop the dismissal from happening
  • order the employer to give the employee their job back
  • have the employer compensate the employee
  • make another appropriate order.

 

Also, if an employee has been dismissed, the employee (or a union that represents them) can apply to Fair Work Australia to attempt to deal with the dispute.

Need help? Call the Independent Contractors Hotline on
1300 667 850.