A recent decision of the Federal Court has confirmed that a Court cannot exercise its powers under the Independent Contractors Act 2006 (Cth) (IC Act) to vary a contract with retrospective effect. The decision substantially limits the utility of the unfair contracts provisions in the IC Act as a means for claimants to seek relief or redress by way of compensation, where they have ceased to provide services under the contract.
Background
The overall aim of the IC Act is to encourage independent contracting. One way in which the IC Act seeks to achieve this is by giving Courts the power to review certain contracts for services and make orders varying or setting aside the contracts if deemed unfair or harsh.
In the case of Informax International Pty Limited v Clarius Group Limited [2011] FCA 183 (4 March 2011) (Informax No 1) (which was the subject of a Middletons eAlert! dated 18 March 2011), the Court was required to review two contracts, one between a labour hire company and Woolworths, pursuant to which the labour hire company provided IT services to Woolworths, and the other between the labour hire company and an independent contractor, who provided IT services.
The two contracts contained restraint clauses which had the effect of preventing the independent contractor from working directly for Woolworths for a period of six months after ceasing work with the labour hire firm.
Upon reviewing the contracts, Perram J found that the contract between the labour hire company and the contractor was unfair and made an order to vary the contract so that the restraint clause could not be enforced.
On the basis of this decision, the independent contractor sought to amend its application to add a claim for damages for breach of contract in respect of the conduct of the labour hire company which took place prior to Perram J's order and which was contrary to the varied contract (Informax International Pty Ltd v Clarius Group Limited (No 2) [2011] FCA 934 (18 August 2011) (Informax No 2)).
In order to determine the application, Perram J was required to consider whether the order made in Informax No 1 to vary the contract between the independent contractor and the labour hire company had retrospective effect.
The decision
Perram J found that the IC Act prohibited the making of retrospective orders, citing section 16(4) which provides that "an order under the Act takes effect as at the date of its making or at some specified later date".
The effect of the decision is that the independent contractor cannot sue for damages in respect of the loss suffered by it as a result of the conduct of the labour hire company which occurred before the contract was varied by the Court. As the independent contractor had ceased working under the contract, a variation of the contract going forward (which cannot give rise to a claim for damages in relation to past conduct) is essentially a hollow victory.
Perram J noted that remedying past unfair behaviours is not what the legislation is about. He noted "those sections disclose a scheme whose end is the reform of unfair contracts and not the remediation of unfair behaviours which have not been contractually forbidden".
However, given that the decision in Informax No 2 does not suggest that the IC Act precludes Courts from amending terminated contracts (so long as the amendment has prospective effect), it will be interesting to see whether Courts will adopt the approach of framing prospective orders in such a way that they may also have the effect of alleviating past unfairness.
Lessons
A party to a contract for services, regardless of whether the contract has terminated or is still on foot, who wishes to obtain relief in respect of conduct by the other party that has already occurred should consider legal avenues other than the IC Act.
Parties who may benefit from making claims under the unfair contract provisions in the IC Act will likely be those who are still performing work pursuant to a contract and who wish to reform the bargain between the parties going forward.
The decision in Informax No 2 is therefore likely to have the effect of reducing the number of claims brought pursuant to the unfair contract provisions in the IC Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.