Sham contracting occurs where an employee tries to mask an employment relationship as an independent contractor arrangement in order to avoid their obligation to provide employee entitlements, such as entitlements under awards, enterprise agreements and the National Employment Standards.
It is unlawful under the Fair Work Act 2009 for an employer to:
- misrepresent to a person that they are an independent contractor when a reasonable person would know they are an employee;
- dismiss or threaten to dismiss an employee so they can then engage them as an independent contractor;
- make a knowingly false statement to an employee (or former employee), who is employed to perform particular work, so as to persuade or influence that person to become an independent contractor and still perform the same, or substantially the same, work.
Key risks of getting it wrong
Some of the risks include:
- The Fair Work Ombudsmen can prosecute employers who enter into sham contracting arrangements with their workers. Civil penalties of up to $66,600 for corporations and up to $13,320 for individuals can be imposed for each breach of the sham contracting provisions.
- An individual can also make a claim under the general protection provisions of Fair Work Act 2009 alleging sham contracting and the same civil penalties apply.
- If sham contracting is proven then, in addition to the civil penalties, the employer would be required to back pay the individual found to be an employee all employee entitlements, including superannuation.
The Australian Tax Office and the Fair Work Ombudsman will investigate employers that intentionally try to avoid their obligations by misclassifying employees as independent contractors.
How can we help you?
We can advise and represent you in any claim made by a contractor or the Fair Work Ombudsman alleging that you have engaged in sham contracting. Speak to one of our experienced Employment Lawyers.