Sham Contracting - What is it?

Principals and workers should try and understand the distinction between an independent contractor and an employee. These classifications can affect their rights and obligations, particularly in relation to tax, superannuation, and workplace entitlements and liabilities. Employers, and also their workplace advisers, need to be wary of entering into any labour arrangement to ensure they comply with the Independent Contractors Act 2006 (Cth) and do not breach the “sham contracting” provisions under the Fair Work Act 2009 (Cth).

Independent contracting is a common form of engaging services within the construction industry.

The operative provisions of the Independent Contractors Act 2006 (Cth) (IC Act) commenced on 1 March 2007. Prior to the IC Act, some independent contractors may have been 'deemed' to be employees under some state and territory laws. The IC Act sought to exclude the operation of these state and territory laws. One of the key consequences of the IC Act is that it is the law of commercial contracts, and not employment law, which regulates genuine independent contracting arrangements.

The IC Act provided for transitional arrangements in relation to independent contracting arrangements entered into before 1 March 2007 which did not "opt-in" to the IC Act. Those transitional arrangements have come to an end on 1 September 2011. Accordingly, certain State and Territory laws that may have deemed certain contractors to be employees will no longer apply (other than laws dealing with outworkers and owner-drivers).

Arrangements should be reviewed because those parties with ongoing independent contracting arrangements entered into before 1 March 2007 who have not 'opted-in' to the IC Act should be aware that, in circumstances where the contractors continued to have rights to be deemed employees under State and Territory laws, the end of the transitional period may trigger a right to accrued entitlements, such as leave.

The Australian Building and Construction Commissioner (ABCC) announced the Sham Contracting Inquiry (ABCC Inquiry). A sham contracting arrangement is where an employer attempts to disguise an employment relationship as an independent contracting arrangement. Certain activities with respect to sham contracting are prohibited under the Fair Work Act 2009 (Cth) (FW Act), including knowingly making false statements to persuade an employer to become an independent contractor and misrepresenting an employment relationship as an independent contracting arrangement (see Division 6, Part 3-1 of the FW Act).

The ABCC Inquiry sought to address a number of concerns with respect to sham contracting. These include the misuse of the label 'independent contractors' to enable underpayment or non-payment of workers' compensation, removing grounds for unfair dismissal claims and avoidance of other rights and entitlements provided by industrial awards, particularly with respect to accrual and payment of leave entitlements. After receiving written submissions from a number of stakeholders and conducting a series of roundtables across the nation the ABCC is currently finalising its report into sham contracting.  

2011 has seen a number of successful prosecutions for sham contracting offences by both the Fair Work Ombudsman and the ABCC, two of which are highlighted below.

In Fair Work Ombudsman v Centennial Financial Services Pty Ltd [2011] FMCA 459 Federal Magistrate Cameron found that a director and the human resources manager of Centennial Financial Services had breached various provisions of the Workplace Relations Act 1996 (WR Act) with respect to the accrual of unpaid annual leave entitlements and unlawfully converting employees to independent contractors. The former owner and sole director of Centennial Financial Services was fined $13,200 and the former human resources manager was fined $3,750. The Court found that, despite the human resources manager exercising no independent judgment and being overborne by the director, he should have been aware of, and at least attempted to give advice on, the company's legal obligations.

In ABCC v Rapid Formwork Constructions Pty Ltd and Anderson, Federal Magistrate Neville imposed penalties of $24,000 on Rapid Formwork Constructions Pty Ltd (Rapid) for contraventions of the FW Act and WR Act as a result of misrepresentations of the terms and conditions of employment of two hired workers. Mr Kevin Anderson (Anderson) was also fined $1,500 for breaches of the WR Act as a result of these findings. In addition to these fines, Rapid and Anderson also agreed to back-pay the two workers nearly $7000 in unpaid wages and entitlements.

Sales persons found to be employees and not independent contractors

Ace Insurance hit with fines for sham contracting

Latest News

Robert Cooper - one of 100 faces of small business

This week it was announced as part of Small Business Week,  that Robert has been named one of the 100 faces of small business for a State Government promotion on the great value that small businesses play in the State of Queensland.

You can see Robert's entry here:

It is the third accolade for CPR Insurance Services in a month and after seven and a half years in business is a real pep up for the company.

For Robert, it is the culmination of many years experience, becoming well qualified, experiencing the highs and lows of a career and always wanting to contribute to his community. Sometimes, these things just come together and you receive recognition for your efforts.

Robert says that there is no doubt that starting your own business is a huge challenge, but with the right research and planning, the right people around you and a good set of values that you apply to the vision of the company, you have a very good chance of making it all succeed.

Robert says he is lucky. He has a strong supportive Wife, Mandy, who is also part of the business, along with efficient and hard working staff such as Julia McLauchlan and Aidan Harmer who are building up their own skills in a learning environment. 

However, the most important and most supportive people for CPR Insurance Services are our clients who have stuck by us and supported us over the past seven years. Our focus remains on providing the best possible service we can and always acting in their best interests. To all our clients, we say thank you!

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CPR Insurance wins Brokerage of the year

CPR Insurance Services picked up the award for the Best Brokerage (1-5 staff) in Australia, last Friday Night (4th May 2018) at the Insurance Business Magazine Awards held at the Westin in Sydney.

Judging came from various parts of the industry. It is a great honour to be recognised for our hard work and particular Business values we follow. A full list of winners is listed here.

Success comes from having great staff, and we thank Aidan Harmer and Julia McLauchlan as important support staff for helping us win such an award.

CPR Insurance has been in operation for more than 7 years now and is only successful because of the wonderful support from our staff, insurers and most importantly, our fantastic clients who put their faith and trust into our company to be their Risk Advisers and Brokers. 

Thank you to all.

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