Sham contracting: Who is an employee and who is an independent contractor?

Sham contracting is an arrangement where an employer attempts to disguise an employment relationship as an independent contracting arrangement. This is usually done in an attempt to avoid responsibility for employee entitlements.

While some labour hire suppliers lawfully provide workers who are described as independent contractors, some applicants supplying workers covered by an award are claiming these workers are ‘independent contractors’. Many of these workers are actually employees and have rights under the Fair Work Act, even if there is a written agreement. Independent contractors are also provided some general protections under the Fair Work Act.

Under the sham contracting provisions of the Fair Work Act, an employer cannot:

• misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement.
• dismiss or threaten to dismiss an employee to engage them as an independent contractor.
• make a knowingly false statement to persuade or influence an employee to become an independent contractor.

The Fair Work Act provides serious penalties for contraventions of these provisions. Employees and independent contractors - who are also provided some general protections under the Fair Work Act - can also request help from the Fair Work Ombudsman if they feel their rights have been contravened. 

For more information about the difference between an employee and contractor visit the Fair Work Ombudsman’s website.