Sham contracting, also known as false contracting, is a term used to describe a situation in which an employer tries to avoid their legal obligations by treating their employees as independent contractors.

In a sham contracting arrangement, the employer will typically require the employee to sign an agreement that states they are an independent contractor, even if they would otherwise be considered an employee under the law. The employer may then avoid their obligations to provide the worker with certain employment entitlements such as minimum wage, superannuation, and leave entitlements.

So, is Sham contracting illegal?

The short answer is yes, sham contracting is illegal in most cases.

Under the Fair Work Act 2009, employers are prohibited from making false or misleading representations about the nature of a worker`s employment. This includes misrepresenting an employment relationship as an independent contractor arrangement when it is actually an employment relationship.

Penalties for sham contracting can be severe for both employers and employees. Employers found guilty of engaging in sham contracting can face significant fines and civil penalties. Employees who have been wrongly classified as independent contractors can also claim back pay for any entitlements they may have missed out on, including minimum wage, superannuation, and leave entitlements.

However, it is important to note that not all contracting arrangements are sham contracting. Some workers may genuinely be classified as independent contractors, depending on the nature of their work and the terms of their contract.

To avoid the risks associated with sham contracting, employers should ensure that their employment arrangements are legitimate and comply with all relevant laws and regulations. This includes providing employees with clear and accurate information about their employment status, as well as their rights and entitlements.

In conclusion, sham contracting is illegal and can have serious consequences for both employers and employees. Employers should avoid engaging in false contracting practices and ensure that their employment arrangements are legitimate and comply with all relevant laws and regulations. Workers who believe they may have been wrongly classified as independent contractors should seek legal advice to understand their rights and entitlements.