Independent Contractors of Australia firmly supports provisions within the Fair Work Act which enable the employee ombudsman to take action to stop and litigate against sham contracts. ICA is firmly of the view that you are or become an independent contractor because you genuinely want to. The sham contractor provisions assist to protect that genuine intent.
A sham contract occurs where:
- someone is engaged allegedly as an independent contractor but is in fact an employee and
- the person who organized the engagement deliberately sought to misrepresent the employment status as independent contracting for the purposes of avoiding employee obligations.
The Fair Work Act 2009 states:
- Division 6 – Sham Arrangements357: Misrepresenting employment as independent contracting arrangement.
- A person (the employer) that employs or proposes to employ an individual must not represent to the individual that the contract of employment under which the individual is or would be employed by the employer is a contract for services under which the individual performs or would perform work as an independent contractor.Subsection (1) does not apply if the employer proves that, when the representation was made the employer;
- Did not know andWas not reckless as to whether;The contract was a contract of employment rather than a contract for services
- 359: Misrepresentation to engage as independent contractor
- A person (the employer) that employs or has at any time employed an individual to perform particular work must not make a statement that the employer knows is false in order to persuade or influence the individual to enter a contract for services under which the individual will perform as an independent contractors the same or substantially the same work for the employer.
Sham contractor provisions were first introduced in 2006 as part of the package related to the Independent Contractors Act. It was, as far as ICA is aware, the first time legislative outlawing of sham contracts has occurred anywhere in the world. The wording in the 2009 Fair Work Act is slightly shorter and more succinct than the 2006 legislation but has the same effect.
How a sham contract litigation would proceed:
- A court would need to undertake a common law case to determine if a contract in question was in fact an employment or commercial contract.
- If a contract was in fact found to be an employment contract a prosecution would proceed under the sham contract provisions.