Say No to Sham Contracts

Posted on 30 August 2011

Entering into employment generally involves the signing of a binding contract between an employer and employee. The contract sets out various terms and policies regarding the rights, obligations and entitlements of each contracting party for the life of the contract.

The nature of a contract differs depending on the particular situation. For example in the case of employment contracts, different types of employees can each have their own unique contracts tailored to their individual circumstances. This may be dependent on, amongst other things, their mode of employment (whether full time, part time, casual and so on), level of experience and so forth.

What is a Sham Contract?

A sham contract is a contract made by an employer which misrepresents or disguises an employment relationship as an independent contracting arrangement. Basically, the employer makes it appear that ‘employees’ are ‘independent contractors’ when in fact they are not.

What is the Difference between an ‘Employee’ and ‘Independent Contractor’?

There are a host of differences between an employee and an independent contractor, which includes varying methods and approaches to the work, the ability to delegate and control how work is done, application of different tax laws, financial risk, work flexibility and many more.

Why do Employers engage in Sham Contracting?

Employers who deliberately create sham contracts for their employees do so predominantly so to avoid having to provide the correct entitlements owed to employees. These include the proper rates of pay, leave entitlements and superannuation. This means that employees under such contracts are being denied the fundamental rights and entitlements that a normal employee would enjoy in a conventional employment relationship.

What does the Law say on this?

Sham contracting is without doubt deceptive, unfair and against the law. Under the Fair Work Act 2009 an employer must not:

  1. force an employee to become an independent contractor;
  2. dismiss or threaten to dismiss an employee if he/she refuses to become an independent contractor; and
  3. misrepresent an employment relationship as an independent contracting relationship.

What to do?

Whether you are an employee or an employer or principal contractor or independent contractor we are able to assist you with the terms of engagement. We are able to prepare or review contracts in order to ensure that they meet and protect your business or individual interests and are in accordance with the law.

Do you need advice on a contract? Make an enquiry here.