What is sham contracting?

Sham contracting refers to the act of engaging an individual under a contract for services where the true character of the engagement is an employment relationship.

The Code provides that a code covered entity must not:

  • engage an individual to perform building work under a contract for services where the true character of the engagement, or proposed engagement, is that of employment
  • propose to engage an individual to perform building work under a contract for services where the true character of the proposed engagement, is that of employment

Further, a code covered entity (the employer) must not enter into a contract with another person (the contractor) under which services in the nature of building work are to be provided to the employer if either of these apply:

  • the services are to be performed by an individual who is not the contractor and the individual has any ownership in, or is an officer or trustee of, the contractor
  • if the contract was entered into with the individual, the contract would be a contract of employment.

These requirements are stricter than the sham contracting provisions in the FW Act.