A sham contract is a contract under which an employer deliberately and falsely attempts to define an employee as a contractor. The motivation for this is usually to avoid paying entitlements such as superannuation and paid leave – employees are entitled to such benefits and contractors are not.
Sham contracts are unlawful. In addition to the penalties that apply under legislation, employers will also be liable to pay the entitlements that the employee would have been entitled to such as back-pay and superannuation.
It is also unlawful to pressure employees to become independent contractors by misleading them or threatening with dismissal.
If you need help in determining whether you are an employee or a contractor see the ATO’s decision making tool.