The information below is only relevant to employers and employees in the WA state industrial relations system - sole traders, unincorporated partnerships, unincorporated trusts and some incorporated or not for profit organisations. Find out more on the Guide to who is in the WA State System page.
If you operate or are employed by a Pty Ltd business you can find information on this topic on the Fair Work Ombudsman website.
About this page
- This page provides details on the provisions prohibiting sham contracting.
- Employees who wish to make a complaint about unpaid wages or entitlements should visit the Making a Complaint about unpaid wages or entitlements page.
- Information is also available on the Employee or Contractor page.
Prohibition on sham contracting
There are provisions in the Industrial Relations Act (IR Act) prohibiting sham contracting. An employer is prohibited from representing, or telling an employee or prospective employee, that a contract of employment (where the worker is an employee and entitled to minimum wages and other protections) is a contract for services (where the worker is an independent contractor).
It is a defence for the employer to prove that, when the representation was made, they did not know (and could not reasonably be expected to have known) that the contract was a contract of employment rather than a contract for services. The onus is on the employer to prove this.
An employer is prohibited from dismissing (or threatening to dismiss) an employee performing particular work for the employer in order to engage them to perform the same (or substantially the same) work under a contract for services. If enforcement proceedings are taken against the employer in the Industrial Magistrates Court (IMC) for breaching the sham contracting provisions, the employer bears the onus of proving that they did not dismiss (or threaten to dismiss) the employee for the prohibited reason.
An employer is prohibited from making a statement that the employer knows (or could reasonably be expected to know) is false in order to persuade an employee to enter into a contract for services to perform the same (or substantially the same) work. If enforcement proceedings are taken against the employer in the IMC for breaching the sham contracting provisions, the employer bears the onus of proving that they did not make the statement for the prohibited reason.
If the IMC determines that an employer has breached the provisions preventing sham contracting, it may impose a penalty on the employer, and may make an order to:
- reinstate the employee if they were dismissed from employment;
- employ a prospective employee who was refused employment; and
- pay the employee compensation for loss or injury suffered as a result of the contravention.
The IMC is not able to make an order in relation to sham contracting if the employee has applied for relief in relation to the matter (e.g. the same dismissal) under another provision of the IR Act or any other written law.