Contractor Agreement Review: Sham Contracting, Super, IP Ownership

A contractor agreement looks simpler than employment — no payroll tax, no super, no leave entitlements, no Fair Work termination process. That apparent simplicity is exactly why it goes wrong. The Fair Work Act 2009 has explicit anti-sham contracting provisions. The ATO uses substance-over-form tests for super and PAYG. The High Court decided two landmark cases in 2022 (Personnel Contracting and Jamsek), and the Fair Work Act changed the test again in 2024.

Get it wrong and the contractor was actually an employee — meaning back-pay of leave, super, payroll tax, plus penalties. Get it right and you have a clean, enforceable arrangement.

The clauses that matter most

• Substance of the relationship. Is the contractor genuinely running their own business, or just an employee dressed up as a contractor? Multiple-factor test: control over how work is done, ability to delegate, provision of own tools, financial risk, integration into the business. The contract is one factor among many — but the contractual terms strongly influence the substance.
• Right of substitution. Can the contractor send someone else to do the work? Genuine contractors can; employees can’t. A meaningful substitution clause is one of the strongest contractor indicators.
• Payment basis. Per task, per project, per output, or per hour? Per-output payment is more contractor-like; pure hourly with no scope deliverable looks like employment.
• Superannuation Guarantee. Contractors who work primarily for their labour are deemed employees for super purposes under section 12(3) of the SGAA — even if they’re genuine contractors for every other purpose. Either pay super or document why the deeming provision doesn’t apply.
• IP ownership. Default rule: copyright in works created by a contractor belongs to the CONTRACTOR, not the engaging party. To get IP, you need an explicit assignment clause. Without it, you’ve paid for work you can only use, not own.
• Insurance. Contractor’s own public liability and professional indemnity insurance — minimum levels specified, certificates required. Workers comp may also apply depending on state and substance of arrangement.
• Termination. Notice period, payment for work in progress, return of materials. Without a notice clause, either party can terminate at any time — usually fine, sometimes problematic.
• Restraint and confidentiality. Reasonable restraints (limited duration, geography, scope) and confidentiality obligations are enforceable. Excessive restraints will be struck down.

Common red flags

• “Contractor” who works full-time for one engager, on the engager’s premises, with the engager’s tools, supervised by the engager — almost certainly an employee in substance
• Hourly rate with no scope deliverable — looks like wages
• No right of substitution — strong employee indicator
• “Contractor must comply with all company policies” — too much control, looks like employment
• No IP assignment clause — engager doesn’t own what they paid
• Super not paid and no documented analysis of section 12(3) SGAA
• Contractor invoices identical amount each fortnight rounded to “salary equivalent” — paper trail screams sham contracting
• Restraint clauses that would prevent the contractor servicing other clients in the same field

What Claim Done’s contract review delivers

Upload the contractor agreement. The review returns an A4 PDF flagging sham-contracting risk, super deeming exposure, IP assignment gaps, and restraint enforceability — pitched at whether you’re the engager or the contractor. The report sets out good, fair and watch points, key obligations, fees and penalties found, and questions to raise with the other side. Flat $49 fee, 24/7.

Personnel Contracting, Jamsek and the 2024 change

In 2022 the High Court decided CFMMEU v Personnel Contracting and ZG Operations v Jamsek. Where the parties had a comprehensive written contract, the relationship was characterised mainly by its terms rather than by how things worked day to day. For the Fair Work Act, that changed on 26 August 2024: section 15AA now requires the question of employee or contractor to be decided on the real substance, practical reality and true nature of the whole relationship, including how the work is actually done, not just the written terms. A well-drafted contractor agreement still matters, but it will not protect an arrangement that works like employment in practice. That is why a review checks the terms against how the work will really be done.