Are you an employee? 

A sham contract, under the Fair Work Act 2009, is the misrepresentation of employment as an independent contracting arrangement. This is often driven by the desire to avoid certain responsibilities such as payroll tax and paying minimum wages, superannuation, workers’ compensation and employee leave entitlements.

You might be told that you are an independent contractor and be asked to register an ABN and have your own insurance policy – but in reality you are operating as an employee of the company without the employee entitlements. At times, you may be asked to incorporate but in reality you are working as an employee. It may not always be easy to spot what relationship you are entering. This is also a concern for businesses in the gig economy with unconventional business models.

This issue was considered by Fair Work Ombudsman (FWO) when they investigated whether Uber was engaged in “sham contracting”. In essence, FWO decided that, because the drivers were able to choose their hours and decide when to take an order, they were independent contractors.


Civil Penalty Contravention – Employers beware

If you are an employer, you should make sure that you are not misrepresenting an employment relationship as an independent contracting relationship. You could be putting yourself at the risk of being penalised under the Fair Work Act. Once found liable, you would face tax penalties, penalties for contravention of the Superannuation Guarantee (Administration) Act 1992.


Even HR Managers Can Be Held Liable

It is not just the employer that should be concerned about their workers’ contracts. Hiring managers and in house HR professionals can be found personally liable when they are involved in sham contracting. This is referred to as accessory liability.

Any involvement in contracts that purport to get around employment laws or avoid costs associated with employee hiring could expose you to costly civil penalties.


How to Classify Your Worker Contract

There is no one factor that determines whether a worker is an independent contractor or an employee. However, there are a number of factors that are considered when assessing a worker contract. These can include whether the worker issues invoices for their work, whether the worker incurs expenditure during their work or whether the worker also works for other clients.

If you tell the “contractor” to wear your company uniform, direct them to attend a specific place at a specific time, provide them with tools and a manual to follow, then he or she is most probably your employee.

In the case of Uber, the determining key factor in the assessment that the commercial arrangement between the company and its drivers does not amount to an employment relationship was through the non-requirement to perform work at particular times. Essentially, the Uber drivers were able to control when they work and how they work therefore they constituted contractor workers.


What to Do From Here?

If your business engages contractors, complete a comprehensive examination of your current arrangements with employees and contractors. Make sure that you implement risk-management processes when you recruit workers for non-traditional working arrangements.

If you are the worker, ensure that your rights are protected. For example, the hiring company or your client could place various rules on the working arrangement – it may look like an independent contracting arrangement but in reality it could be an employment arrangement even though you are not being paid the employee entitlements such as superannuation and leave.


Further Information

It is important that businesses are aware of their obligations under the legislation. We can provide additional information and advice to you. See our blog post on casual employers or if you would like to discuss your concerns with a legal professional please contact us on 9963 9800 or at