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Sham Contracting

Legal documents for start-up

On 20 October 2016, Chamberlains Law Firm filed the class action for sham contracting in the Federal Court of Australia.

Sham contracting has become increasingly prevalent in our society and can often result in employers failing to pay their employees enforceable minimum wages. Often sham contracting is used by employers to avoid paying minimum award entitlements and other benefits that all employees are entitled to.

In Australia clear distinctions exist between employees and independent contractors. Sham contracting occurs where an individual is described as an independent contractor but the relationship between the parties is actually one of employment.

When establishing whether an individual is an employee or an independent contractor the underlying nature of the employment relationship is examined. The label describing the relationship is not determinative of the nature of the agreements: “if it looks walks and quacks like a duck, it’s a duck even if the parties have agreed to call it a rooster”.

In examining the underlying nature of the engagement, a multi-facet test should be applied to determine whether the person is carrying on a business or enterprise in an independent matter.

In determining whether a person is carrying on a business in an independent matter the following range of factors must be examined:

Work: the extent to which the type of work is consistent with an employment relationship;

Control: the extent to which the principal controls how workers perform their work;

Payment: the extent to which the method of payment is consistent with an employment relationship;

Enterprise: the extent to which the worker appears to be carrying on a business or enterprise; and

Independence: the extent to which the workers are an extension of someone else’s business without an independent business of their own.

Further criteria for establishing the difference between an employee and a contractor can be found at:

Where a relationship is found to be one of employment rather than a contractor agreement, the employee has a right to bring a claim for underpayment of wages and entitlements, compensation and for penalties against the employer.

If you believe that you may be a victim of sham contracting, please contact Chamberlains Law Firm by calling (02) 6215 9100 or email