Sham contracting claim workflow
Since Personnel Contracting and Jamsek, characterisation turns on the terms of the written contract, not the day-to-day practice. A sham contracting claim therefore starts with a careful reading of the contract and ends with the underpayment calculation flowing from true employment status — award minima, super, leave, and tax.
This is an 8-step workflow for a sham contracting claim under Part 3-1 Division 6 of the Fair Work Act 2009 (Cth), applying the post-Personnel Contracting written contract test. It runs from characterisation through underpayments, pecuniary penalties, and Fair Work Ombudsman engagement.
Before you start
- Signed costs agreement and conflict check
- Copy of the contractor agreement and any variations
- Payment records and invoices for the full period
- Client instructions on day-to-day working arrangements
The workflow
Apply the written contract test
Characterise the relationship by reference to the rights and obligations in the written contract, consistent with Personnel Contracting and Jamsek, rather than the multi-factor "totality" test.
Check for sham contracting conduct
Apply s 357 (misrepresenting employment as independent contract), s 358 (dismissal to re-engage as contractor), and s 359 (misrepresentation to engage as contractor). Each is a separate civil remedy provision.
Identify the applicable award or enterprise agreement
Identify the modern award or enterprise agreement that would have applied, the classification level, and any allowances. This drives the underpayment calculation.
Calculate underpayments, super, and leave
Calculate underpayments against the applicable instrument plus superannuation guarantee, annual leave, and personal leave accrued across the engagement.
Issue demand or engage Fair Work Ombudsman
Issue a demand letter setting out the characterisation, underpayments, and penalty exposure, or lodge a request for assistance with the Fair Work Ombudsman for investigation.
Prepare statement of claim for pecuniary penalties and compensation
Prepare Federal Court / Federal Circuit and Family Court of Australia proceedings seeking declarations, pecuniary penalties under s 546, and compensation for underpayments.
Address the statutory defence
Under s 357(2), the respondent must be shown to have known or been reckless about the mischaracterisation. Address the evidentiary burden and any reliance on legal or accounting advice.
Mediate and settle or run to hearing
Participate in court-ordered mediation; most sham contracting matters settle on payment of underpayments, super, and a discounted penalty. If unresolved, run to hearing and seek declarations and penalties.
What you will have at the end
Either a negotiated settlement paying underpayments, super, and an agreed amount, or a court judgment declaring employment status, awarding compensation, and imposing civil penalties.
Common issues
- Characterisation argued on practice rather than the written contract
- Underpayment calculation omits super guarantee and leave
- Personnel service arrangements misread as sham contracting
- Statute of limitations on underpayments not correctly addressed
- Reliance on advice defence not properly evidenced
Run this workflow on a real matter
Quillio runs the written contract characterisation, calculates underpayments and super against the applicable award, and drafts the demand and pleadings. See /practice-areas/employment-lawyers or start a free trial at /free-trial.
General guide only — not legal advice. Sham contracting law continues to evolve; confirm authorities and ATO guidance at the time of advice.
Try this workflow with Quillio.
Quillio can run this workflow on a real matter, with citations to current AU authority on every step. The free trial requires no credit card.
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