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Sham Contracts: What are they & how to avoid them

By 29 August 2022No Comments

A sham contract is an arrangement where an employer attempts to disguise an employment relationship as an independent contracting arrangement. This is usually done to avoid paying employee entitlements such as superannuation, workers’ compensation, leave, and certain taxes. Sham arrangements are illegal.
Sham contracting arrangements are illegal

  • •    An employer cannot tell an employee that he or she is an independent contractor.
  • •    An employer cannot dismiss or threaten to dismiss an employee in order to engage them as an independent contractor to do the same (or mostly the same) work they performed as an employee and vice versa.
  • •    An employer cannot mislead an employee (or former employee) in order to persuade them to perform the same (or mostly the same) work as an independent contractor.

The Fair Work Ombudsman, the Australian Building and Construction Commission or a union can take action against an employer for behaving like this.
Contracts with minors
Special considerations apply where one of the parties to a contract is a minor (a person under 18 years of age). A contract might not be enforceable against a minor, especially if it includes terms that are unfair to the minor. But the rules are different in each state and territory and you should get advice on the issue if it applies to you.
Contact the team at Pendragon for more information on sham contracts or visit the Contractor Management Page for more information on how we can assist you in your contracting roles.


All information is sourced from the Australian Government Website

Pendragon Team