Sham contracts: the new normal for migrant workers

By Regina Featherstone, Solicitor, Redfern Legal Centre

Here at the Migrant Employment Legal Service (MELS), we see all kinds of breaches of Australian workplace laws by employers in the exploitation of temporary visa holders and migrant workers. From wage theft to unfair dismissal, we advise clients on a range of legal issues and help them to assert their legal rights. Recently, we have advised an increased number of MELS clients on sham contracting arrangements and assisted them to take action against this form of workplace exploitation.

If you, or a friend works under an Australian Business Number (ABN) but has no real business doing so, read below to spot the signs of sham contracting and to become informed about your workplace rights.

What is Sham Contracting?

Some employers disguise their employees as contractors to avoid paying minimum wage, sick leave, personal leave, superannuation and to avoid any future liability of work to their employees. At MELS, we routinely see employers asking their employees to obtain an ABN and issue invoices for payment to work set hours at the direction of their employer, in industries like cleaning or fast food where there is no basis for the employment classification as being anything other than employee.

To be clear, there is nothing wrong with being a contractor if you are genuinely working for yourself. The issue is when you are truly an employee and classified as a contractor, you are not covered by the Fair Work Act 2009 (Cth) and made more vulnerable to wage theft and being left jobless without warning and unable to take legal action.

Often our clients say things like, “My employer made me get an ABN but I didn’t think anything of it. I thought that’s just how it works in Australia and they were paying me $20 per hour”. This is a really common statement, because $20 per hour sounds like a pretty good hourly rate, considering the minimum wage is $19.84. However, depending on your industry and work patterns, you may be a casual entitled to 25% loading on top of your industry minimum rate along with superannuation. If you are full time, this amount does not cover superannuation and give your leave entitlements and is likely an underpayment of your industry minimum entitlement.

There is another hidden danger with sham contracting which we have seen many MELS clients face – the issue of insurance. If you have an accident at work, you are not covered by your employer’s insurance because you are expected to have your own insurance as a contractor as technically, you are an employer when you have an ABN. Unfortunately for some of our clients, they don’t realise their situation before it’s too late and they are being chased by an insurance company.

How do know if I am working under a Sham Contract?

Temporary visa holders and migrant workers are vulnerable to sham contracts because employers normalise this practice and it is difficult to know or even realise this is a method of exploitation if you are unfamiliar with the legal system in Australia. More than this, temporary visa holders and migrant workers are made vulnerable because there is a willingness to accept any work that is offered, especially given the difficulties of finding work during the COVID-19 pandemic where entire industries have shut down.
It can be tricky to determine whether you are part of a sham contracting arrangement.

However, if you have an ABN and have to issue invoices to get paid, ask yourself:

  1. Do I have control over the way I do my work?
  2. Do I decide the hours I work, so long as I complete the specific job I’ve been asked to do?
  3. Do I get paid annual or personal leave?
  4. Do I pay my own taxes directly to the ATO?
  5. Do I have my own work insurance?
  6. Do I use my own tools/equipment for work?
    If you answered ‘no’ to those questions, it could be that you are an employee and not an independent contractor.

What can I do if I am working under a Sham Contract?

It is illegal for your employer to classify you as an independent contractor if you are in fact an employee. It is not a choice for them to decide how you are employed.

If you think you are a victim of sham contracting, contact MELS to have a confidential and free legal advice session. One of our lawyers may be able to assist you in being declared an employee, which would not only secure your rights and entitlements moving forward, but would entitle you to be back paid for any underpayments if you were being paid below the Award rate for your industry.

You may also contact the Fair Work Ombudsman for advice on your situation.

To contact MELS, call 8002 1203 or text us on 0475 360 241.

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