However sham contracting is still widely used to exploit instructors.
Correct.
And, according to CASA, it is contrary to the civil aviation safety legislation. Remember the basis on which CASA crushed Glen Buckley into the ground:
The operational and organisational arrangement contemplated by CASR 141 [and Part 142] are based on a conventional business model, under which all of the operational activities conducted by the authorisation holder are carried out, for and behalf of the authorisation holder by persons employed by, and in all respects as agents of, the authorisation holder.
If the instructor is in fact an independent contractor, s/he is not "in all respects an agent" of the authorisation holder.