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“My Boss wants me to be a Contractor and get an ABN”: What is Sham Contracting?

Caucasian hand filling out an employment agreement contract | Shine Lawyers

With the rise of the gig economy and companies such as Uber, Foodora, Deliveroo and Airtasker, more Australians are taking up roles as independent contractors.

The legal system is currently grappling with the question of whether the manner in which staff are engaged in these businesses is legitimate, and if these independent contractors are rather in substance employees.

Just recently, the Fair Work Ombudsman has alleged that Foodora engaged in “sham contracting” by misclassifying staff as independent contractors rather than employees. The Australian Tax Office has come forward more recently and expressed a view that staff were employees and not independent contractors.

What does this mean for me?

It is not just in the gig economy where Australians are being utilised as ‘independent contractors’ and in some circumstances this is perfectly acceptable. If it is not an acceptable arrangement, it is called ‘sham contracting’ which is unlawful. Here is how you can recognise it.

What is an independent contractor?

An independent contractor is someone who operates under an ABN and is not an employee of the company that they perform work for. Sometimes an independent contractor may operate their own business and have many clients, in other cases the independent contractor may only do work for one company.

There is no single factor which will determine if an employee is legitimately an independent contractor or if they should be an employee. Rather, courts will weigh up the following factors and make a decision based on the specific circumstances of the case. These factors include the following:

  • How much control does the person have over their work? A greater degree of control may point towards an independent contracting relationship;
  • Does the person have set hours of work or do they get to pick when they work? An employee will usually have set hours of work whereas an independent contractor can pick when they work;
  • Does the independent contractor run their own business and have other clients?
  • Who bears the risk for the performance of the work? An independent contractor will usually be responsible for their own work and have their own insurances;
  • Is there an ongoing expectation of work? An independent contractor will not always have a right to ongoing work whereas an employee may;
  • Is a uniform work – usually an employee is required to wear a uniform;
  • Who provides for equipment and tools – an employee should have all of these costs covered by an employer whereas it is generally the expectation of an independent contractor that they have their own equipment.

Why do companies engage in Sham contracting?

If someone is engaged as an independent contractor they are not an employee and not entitled the benefits an employee has, including the following:

  • Leave – including annual leave, sick leave and long service leave;
  • Entitlements under an award such as minimum rates of pay, overtime, penalties and loadings;
  • Superannuation (in some circumstances);
  • Access to unfair dismissal;
  • Notice and redundancy entitlements.

Often companies will utilise an independent contracting model in their business to avoid paying these entitlements.

Foodora rider delivering food | Shine Lawyers

What is sham contracting?

Sham contracting is when an employer deliberately engages someone as an independent contractor when they should be an employee.

Sham contracting is unlawful under the Fair Work Act 2009 (Cth). Monetary penalties can apply to companies who engage in this conduct.

What are my rights?

If you should be engaged as an employee rather than an independent contractor, then you are entitled to the benefits that an employee has.

Further, protections exist at law and these include:

  • Employer’s cannot say something untrue to convince an employee to become an independent contractor; and
  • Being fired or threatened to be fired if you don’t agree to become an independent contractor.

How can Shine Lawyers help?

Shine lawyers can help assist to determine if you have been engaged in a sham contracting arrangement and recover any lost entitlements as a result of that arrangement.

We also work on a “no win, no fee” basis so if you don’t win, you don’t have to pay us anything. If you’ve lost wages you’re entitled to or have any other inquiries about sham contracting, contact us: https://www.shine.com.au/service/employment-law.

Written by Shine Lawyers on . Last modified: August 30, 2018.

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