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Sham Contracts:

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Sham contracting occurs when an employer attempts to disguise an employment relationship as an independent contracting arrangement. This is usually done for the purposes of avoiding liability for employee entitlements.

The Fair Work Act 2009 (“the Act”) prohibits employers from engaging in sham contracting. An employer cannot:

  • Misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement;
  • Dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor;
  • Make a knowingly false statement to persuade or influence an employee to become an independent contractor.

The Act provides serious penalties for contraventions of these provisions. Sham contracting can have consequences which go beyond the provisions contained within the Act. The misclassification of an employee as an independent contractor can potentially lead to other contraventions of the Act and other laws. At Navado, our solicitors have experience in a number of related fields and may be able to provide you with advice in relation to potential constructive trusts which may arise in relation to benefits and payment, tax implications and potential criminal liability which may accrue.

Importantly, engaging contractors that are employees at common law introduces a substantial degree of risk to the operations of a business. Misclassification can lead to a contravention of the National Employment Standards, minimum wage orders, and terms of a modern award or enterprise agreement. Misclassification can also lead to contraventions of employer obligations to provide employee records and pay slips. An employer may also be exposed to back payments of wages and superannuation payments and taxation implications may consequently arise. This can be significant and costly, particularly if the misclassification has occurred for a lengthy period prior to the relationship being disputed. Further, the employer may also be held liable for loss or damage suffered by another party as a consequence of the actions of the worker, and those liabilities can be significant.

The common law relies on a number of relevant factors to determine whether a worker is an employee or independent contractor. Some of the factors the courts have found include, but are not limited to, the following:

  • Does the hirer have the right to exercise detailed control over the way work is performed?
  • Is the worker required to wear a uniform?
  • Must the worker supply and maintain any tools or equipment?
  • Is the worker paid according to task completion, rather than receiving wages based on time worked?
  • Is the worker free to work for others at the same time?
  • Can the worker subcontract the work or delegate performance to others?
  • Is taxation deducted by the hirer from the worker’s pay?
  • Is the worker responsible for insuring against work-related injury they might suffer?
  • Does the worker receive paid holidays or sick leave?
  • Additionally Navado has considerable access to a wide variety of expert counsel who may be able to assist you in the most focused and effective way regarding your complex matter. The combination of our in-house expertise, resources and counsel allows Navado to cover the field of law and advise you in relation to your complex matter, with a mind to advising you of causes of actions.

If you require advice as to whether a working arrangement is one of an employment relationship or independent contract or if a sham contracting dispute exists, we recommend that you contact our firm on (02) 9233 4048 or send an email to info@navado.com.au and arrange an appointment to see one of our Complex Disputes & Litigation Solicitors. 

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This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.

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