Am I in a Sham Contract as an Employee or Contractor?

It can be confusing for workers entering into an employment arrangement to know whether the business has retained them as an employee or a contractor. Sometimes, employers may disguise an employment relationship as an independent contractor arrangement to avoid fulfilling employee entitlement responsibilities. This is also referred to as sham contracting. Below, we explain how to recognise whether you have entered into a sham contract and your rights under the Fair Work Act 2009 (Cth).

How to Tell if it’s a Sham Contract

If an employer has hired you as a contractor and you are unsure whether you are in fact an employee, you can ask yourself the following questions.

Importantly, many workers misunderstand that if they have an ABN or issue invoices, then they are an independent contractor. If you are still completing the same work as an employee, regardless of having signed a contractors agreement or being paid via an ABN, you may have entered into a ‘sham contract’.

What are Employees Entitled to Under the Act?

You should first check to see whether an award applies to your role by visiting the Fair Work website. If no award applies, then the National Employment Standards (NES) will apply instead. These are the rights that apply to all employees (some do not apply to casuals) in Australia and include:

• flexible arrangements,
• annual leave,
• personal and sick leave,
• parental leave,
• community leave,
• long service leave,
• public holidays,
• certain periods of notice for termination, or
• redundancy pay/process for making an employee redundant.

You have up to six years after the end of the relationship to claim for unpaid entitlements from your employer. If you wish to initiate a claim for unfair dismissal or a general protections application, then you need to apply within 21 days’ of the effective date of termination.

What Remedies are Available?

If you believe an employer has incorrectly classified you as an independent contractor, and you have not received the correct entitlements, there are several different avenues you can take.

Firstly you can make a complaint to the Fair Work Ombudsman (FWO) about the situation, and they may investigate the matter. The outcomes of such an investigation are as follows:

• FWO could issue the employer with letters of caution, compliance notices or penalty infringement notices;
• FWO could refer you to mediation;
• FWO could choose to take legal action; or
• FWO could recommend that you take legal action.

If you decide to proceed to court to claim unpaid entitlements, there are a few different avenues you can take. You should receive legal advice to confirm which is the most appropriate avenue in your circumstances.

Key Takeaways

If you are concerned about your status at work, it’s important that you seek clarification. Under the Fair Work Act, if an employer tries to disguise an employment relationship as an independent contractor arrangement, it may be a sham contract. Under the Fair Work Act, your employer may owe you employee entitlements.

You should first review your employment relationship and assess whether it is that of an employee or contractor. Once you have established this employment status, you can then take action against your employer for unpaid entitlements and wages if applicable.

An employment lawyer can confirm whether you are an employee and help you apply to receive the entitlements owed to you. If you need assistance from our employment law team, call us on 1300 544 755.