What is sham contracting?
Sham contracting is when an employer wrongly disguises an employment relationship as independent contracting, which is unlawful under the Fair Work Act.
Sham contracting is when an employer misrepresents an employment relationship as an independent contracting arrangement to avoid paying entitlements such as leave, superannuation, and minimum wages. It is prohibited under section 357 of the Fair Work Act 2009.
The law also prohibits an employer from dismissing or threatening to dismiss an employee in order to re-engage them as a contractor (section 358), and from knowingly making false statements to persuade someone to become a contractor (section 359). Courts can impose significant penalties, and the worker may be entitled to back-pay of unpaid entitlements.
Key facts
- •Prohibited under section 357 of the Fair Work Act 2009
- •Occurs when an employer disguises a genuine employment relationship as contracting
- •Sections 358 and 359 also ban dismissal-to-re-engage tactics and false statements
- •The Fair Work Ombudsman can investigate and take action; courts can order penalties and back-pay
- •An employer has a defence only if they did not know, and were not reckless about, the true nature of the relationship
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Contractor or Employee CheckFrequently asked questions
What's the difference between misclassification and sham contracting?
Misclassification can be an honest mistake about a worker's status. Sham contracting involves an employer misrepresenting the relationship, often deliberately or recklessly, to avoid employee entitlements — which carries penalties under section 357.
What can I do if I think I'm a victim of sham contracting?
Keep records of how you actually work and contact the Fair Work Ombudsman on 13 13 94. You may be owed unpaid wages, leave, and superannuation, and the employer may face penalties through the courts.
FairWork Mate is an independent commercial service. We are not affiliated with, endorsed by, or associated with the Fair Work Ombudsman, the Fair Work Commission, or any Australian Government agency. Content is general information and estimates only — not legal, financial, or tax advice. Always verify with the Fair Work Ombudsman (13 13 94) or a qualified professional.