As recent scandals at Myer and Pizza Hut have revealed, bosses continue to trick unsuspecting employees into arrangements that strip them of lawful entitlements in order to save costs.

Both of these retail giants were accused in November of paying workers as contractors rather than full-time employees – an illegal strategy called ‘sham contracting’ that can deprive the worker of income, penalty rates, superannuation and insurance.

McDonald Murholme employment lawyer Andrew Jewell told The New Daily his firm sees “a steady number” of clients affected by this problem, with no sign of abatement.

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Often these workers come to the firm seeking help after their employment has ceased, with no idea they were being cunningly ripped off the entire time.

“There are certainly those out there who know exactly what they are doing, put in place these arrangements knowing exactly what they mean and rely on the fact that the individual isn’t as aware of the legal situation,” Mr Jewell said.

Many of these workers are told to sign written contracts – a clue the sham is a well-researched swindle, not an inadvertent mistake on the boss’ part.

“Many of the employees just take the contract on face value and don’t even know their rights or really think to go much further and I think the companies play off this a little bit,” Mr Jewell said.

A senior union official confirmed to The New Daily that the problem of “very deliberate” shams is rife, resulting in “appalling, horrible” impacts on workers and their families.

“You’ve got workers at the low end of the scale who are actually earning wages as contractors that are below the poverty line,” National Union of Workers (NUW) Victorian branch secretary Gary Maas said.

“They would have to cover their own workcover insurance and protection in a health and safety regard and in many cases have to work upwards of 70 hours a week just to be able to keep their head above water and earn a decent wage.”

What is a sham contract?

Sham contracting occurs when an employee is pushed into an independent contracting relationship where they are classed as a contractor and paid an ‘all in’ sum inclusive of tax, leave and superannuation.

As a result, these workers may not be covered by workers’ compensation insurance. This is even more of a problem for low-paid workers because they cannot afford to have unpaid leave, fall behind in taxation and are not able to make their own superannuation contributions.

Warning signs include being told to apply for an Australian Business Number (ABN) despite your work being controlled entirely by your boss, who provides your equipment and does not delegate your tasks to anyone else.

The Australian Tax Office says there are many myths about contracted workers, including that it becomes legal if the worker agrees to it; that sham contracting is allowed for short-term jobs; and that there is such a thing as an 80/20 rule that protects employers.

Why do employers do this?

Employers use sham contracts to avoid their obligations to provide tax and superannuation as well as accrue and pay leave.

According to McDonald Murholme’s Mr Jewell, employers may use sham contracts to avoid paying Award rates and otherwise implement below-market or unlawful conditions for employees.

Sham contracting breaches the Fair Work Act with the exception that the employer was not aware of and was not reckless of the employment status.

“Employers who choose to involve themselves in shamming take on significant legal risks, breaching multiple areas of the Fair Work Act,” Mr Jewell warned.

What can you do?

If you think you are unfairly employed as an independent contractor, you can:

• Consult an employment lawyer

• Contact your union

• Check out the ATO’s Employee or contractor online tool

• Read the ATO’s definition of an employee

• Call the Fair Work Ombudsman on 13 13 94.

Shammers who are caught may be fined and forced to repay wages and benefits.

Mr Jewell said that workers need to keep in mind that some claims are subject to limitation provisions, so acting sooner rather than later is the best way to go.

“The ATO will pursue superannuation but other entitlements are recoverable in a Court,” he said.

Individuals should expect the employer to deny the claim. After all, the relationship was established to avoid such claims.