What Is a Sham Contract

What is a Sham Contract? Understanding the Basics

A sham contract is a type of employment agreement that appears to be legitimate but instead is used to disguise the true nature of the employment relationship. In other words, it is a contract that has been intentionally designed to deceive the parties involved.

Sham contracts are often entered into to avoid legal obligations such as minimum wage, superannuation, workers’ compensation and leave entitlements. They can be used by employers to evade their legal and ethical responsibilities, and to exploit vulnerable workers.

For example, an employer may ask an employee to sign a contract that identifies them as an independent contractor rather than an employee. This means the employer can avoid paying certain entitlements and can instead require the worker to pay their own tax and insurance.

Similarly, an employer may require a worker to enter into a sham contract as a casual employee when they are really working regular hours and should be entitled to the benefits of permanent employment.

Alternatively, an employer may enter into a sham contracting agreement with a labour hire company, which then employs workers and pays them below the minimum wage. This can be a way for the employer to avoid paying for entitlements such as sick leave, annual leave, superannuation and workers’ compensation.

In Australia, the Fair Work Act 2009 prohibits sham contracting and makes it illegal for employers to misrepresent the nature of an employment relationship. The Act provides penalties for employers who engage in sham contracting, including fines of up to $63,000 for companies and up to $12,600 for individuals.

Employees who believe they have been engaged in a sham contracting arrangement can seek legal advice and make a complaint to the Fair Work Ombudsman. Employers who are found to have breached the legislation can be required to back-pay workers for entitlements that have been denied, as well as facing prosecution.

In conclusion, a sham contract is a fraudulent employment agreement that is designed to misrepresent the true nature of the employment relationship. Employers who engage in sham contracting can face serious legal and financial consequences, while employees who have been exploited can seek compensation and justice. As a professional, it is important to understand this topic and provide accurate information to readers.