The Australian Government has established protection for genuine employees who are pressured into independent contracting relationships by their employers. This situation is called a sham arrangement.
Sham contracting arrangements are unlawful under independent contractors laws. The Office of the Australian Building and Construction Commissioner (ABCC) is responsible for investigating sham contracting arrangements in the building and construction industry.
What is a sham arrangement?
A sham arrangement is where an employer attempts to disguise an employment relationship as an independent contracting relationship. This situation may arise because an employer wants to avoid responsibility for paying legal entitlements due to employees, such as minimum rates of pay and leave entitlements.
What are the offences?
- Misrepresentation of genuine employment: A person misrepresents an employment relationship, or a proposed employment arrangement, to be an independent contracting arrangement.
- Re-engagement: An employer dismisses, or threatens to dismiss, an employee with the sole or dominant purpose of re-engaging that employee as an independent contractor to perform substantially the same work.
- False and Misleading Statement: An individual knowingly makes a false statement with the intention of persuading a person to enter into an independent contracting arrangement.
What penalties may be imposed for sham conduct?
If an employer is found to have contravened one of the above provisions, the court may:
- grant an injunction to stop an employee from being dismissed
- order the reinstatement of a dismissed person
- order compensation
- impose a monetary penalty.
The maximum penalties are $6600 for an individual and $33,000 for a body corporate.
Onus of proof
Misrepresentation: The employer must prove that they did not misrepresent the relationship rather than the employee having to prove that the employer did.
Re-engagement: The employer is presumed to have breached the provision unless they can show that the dismissal and subsequent re-engagement was for a purpose other than converting the employee’s status to an independent contractor.
What is the role of the ABCC?
ABCC Inspectors can investigate suspected sham contract offences.
The ABCC, an employee or a union can commence legal proceedings in respect of a sham contract arrangement.
Further information
You can download a printable version of this fact sheet here: Sham Contract Arrangements (PDF - 94KB)
The Office of the Australian Building and Construction Commissioner
Department of Education, Employment and Workplace Relations
- Independent Contractors Hotline: 1300 667 850
Website: www.workplace.gov.au/workplace/Individual/Contractors/Independent+contractors
The information contained in this fact sheet is correct as at 26 February 2008.
This material is for general information only. You should seek legal advice in relation to your particular circumstances. The Australian Government, its employees and agents do not accept any liability for action taken in reliance on this document and disclaim all liability arising from any error or omission. ABN 68 003 725 098
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