Sham Contracting - What You Should Know

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Home > Blog > Sham Contracting - What You Should Know

In Australia and globally the working landscape is changing from the traditional employer/employee set up that we have known for so long. There are new ways to earn money, and many Australians are setting themselves up as independent contractors, taking advantage of the new ‘gig economy’ heralded by organisations such as Uber and Airtasker.

As this concept grows in popularity among workers and businesses in Queensland, the law is not so sure. The legal question arises – when should workers be engaged as independent contractors and when as employees?

So, what does this mean?

In certain situations, using the services of an independent contractor is entirely above board and fine. However, there are times when it is unacceptable in the eyes of the law. This is referred to as ‘sham contracting’.

So, in legal terms, how can we know when it’s right and when it’s not?

Independent Contractors

Independent Contractors are not employees of the organisation that they are carrying out services for. They have their own ABNs and essentially operate as a business, possibly servicing other customers.

It is difficult to pinpoint a single element which establishes if a worker is a legitimate contractor or in fact, if they should be an employee. Each case will be judged by its own particular circumstances. These may include:

  • Control – If the worker has more control over the work in question, a contracting agreement may be appropriate
  • Hours of work – employees usually have set hours whereas contractors may have more flexibility about when they complete the job
  • Does the worker have a business themselves and provide services to other customers?
  • Risk – a contractor will usually be responsible for their work and should hold appropriate insurance
  • Continuous work – contractors don’t necessarily have a right to expect ongoing work, but employees typically do
  • Uniforms – Employees may be expected to wear a uniform to perform their duties
  • Equipment – Employees should have tools of the trade provided for them, but contractors are usually expected to provide their own

Sham contracting – what is it?

When employers engage workers deliberately as independent contractors instead of as employees, this is sham contracting.

This is an unlawful practice, and there are hefty fines for organisations who are found guilty of such conduct. If you have any concerns about your rights in an employment situation, it is advisable to get some trustworthy legal advice and engage the services of experienced lawyers.

So why do companies use Sham contracting?

Quite simply, it’s a matter of rights. Independent contractors aren’t entitled to any of the benefits enjoyed by employees. Examples of these include:

  • Leave – annual, sick, maternity, long service etc
  • Unfair dismissal access
  • Pay Entitlements – minimum pay rates, overtime etc
  • Redundancy/ notice entitlements
  • Superannuation

Organisations avoid paying such entitlements by using an independent contractor business model.

What else should I know?

Queensland employers and workers are advised to be aware of their rights and the protections against sham contracting that exist within the law.

If you need legal advice regarding this or any aspect of employment law, our lawyers can help. Contact Cairns Employment and Workplace Lawyers today, on 07 4052 0763 to arrange a confidential, obligation-free consultation.

Cairns Employment and Workplace Lawyers are part of Preston Law, Cairns’ largest law firm. Our trusted legal advice has been helping locals and clients from across Queensland for over twenty-five years. 

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