One of the 'evils' eradicated from the industrial relations system by the Work Choices reforms was the 'unfair contracts' jurisdiction operating in NSW and Queensland, previously available to workers of all stripes, including employees, contractors (whether companies or individuals), and other 'arrangements' or 'understandings' for the performance of work. However, a more limited substitute jurisdiction was established by the Independent Contractors Act from March 2007, applicable only to contractors. The Federal Magistrates Court has now had two opportunities to consider and determine claims made in the jurisdiction which, at this stage, is unaffected by the Forward with Fairness reforms.
In the first of these, the Federal Magistrates' Court found that the contracts of three owner-drivers were unfair, to the extent that they allowed the principal to require them to upgrade their trucks.
In the second case, $36,000 in damages was awarded to the contractor after their contract was terminated without notice.
Keldote v. Riteway Transport
Riteway involved an unfair contract claim by 3 ownerdrivers contracted to Riteway – all long term corporate contractors – following a direction from the company to upgrade their equipment from singletrailers to B-doubles. They were told that, if no upgrade occurred, they would eventually be offered no further work. While the company offered some compensation for the upgrade, in the nature of an increased trip-rate, the owner-drivers all argued that the compensation offered would not compensate them for the increased costs they would have to incur.
While the drivers sought to negotiate the matter, the company was intransigent upon its requirements. That was ultimately its undoing.
The Court found that the contractual arrangements between the parties were unfair to the extent that they "permitted Riteway to require the [drivers] to renew their vehicles with replacements that were materially different from the vehicles which had previously been acceptable" in circumstances where Riteway had no corresponding obligation to reasonably compensate the drivers for their additional expense.
The Court ordered that the contracts be amended to limit Riteway's power to require the drivers to provide new vehicles, so that the company could only require replacements "having specifications reasonably equivalent to" the vehicles to be replaced. The proceedings were adjourned for the later consideration of damages and other remedies.
The case was originally decided in August 2008. However, in December upon Riteway's application, the August order was withdrawn, upon the basis that the order made had not been actively considered by any of the parties at the hearing. The drivers had originally only sought payment of compensation for the cost of the new equipment required by Riteway.
At the time of writing, the proceedings were continuing with final orders yet to be determined.
Fabsert v. ABB Warehousing
The contractor, Fabsert Pty Ltd, had a contract with ABB Warehousing (NSW) Pty Ltd for Fabsert to manage a warehouse and load containers. The contract was made in 2005. In 2007 it was terminated by ABB without notice. Fabsert brought proceedings in the unfair contracts jurisdiction seeking compensation, alleging that the contract had been unfair in a range of respects. Among other things they argued that a term should be implied into the contract requiring ABB to provide reasonable notice of between 6 and 9 months prior to terminating the contract.
The 'unfairness' in the contractual arrangements alleged by Fabsert included that:
- it had a significantly weaker bargaining position to ABB when the contract was made;
- ABB had used unfair tactics to encourage Fabsert into contracting. In particular, it was alleged that ABB had "promised" to pay Fabsert an extra $20,000 "once the business was up and running"; and
- the weekly amount paid to Fabsert ($3,000) was less than an employee performing similar work would have received.
As a threshold question, Fabsert had to establish that the Independent Contractors Act applied to its situation.
The Act provides that a contract made by a contractor that is a body corporate cannot be the subject of an unfair contract claim unless the work to which the contract relates is "wholly or mainly performed by a director [including a de-facto director] of the body corporate" or a family member of a director.
Unfair contract claims by companies
Federal Magistrate Driver held that significantly more than half of the work under the contract must have been performed by the directors if the company's claim was not to be excluded from the jurisdiction. In Fabsert's case he decided that the company was able to make a claim, despite having employed casual staff and sub-contractors to do some of the work, because it was the skill, experience and judgement of Fabsert's directors that was brought to bear in the provision to ABB of warehouse management services under the contract. Through that contribution they had done more than half of the work required under the contract. It did not matter that one of the company's two directors had only been appointed director for the last 5 months of the contract.
In all but one area Fabsert's complaints of "unfairness" were dismissed. It was found, for example, that there had not in fact been any unequivocal promise of an additional payment "once the business was up and running". A related claim for damages for misleading and deceptive conduct under the Trade Practices Act was rejected for the same reason.
However, Fabsert was successful in claiming that reasonable notice should have been given upon termination of the contract, with the Magistrate finding that a requirement for 12 weeks notice of termination should be implied into the contract. Relevant factors included:
- the time required for Fabsert to hand over the management services to ABB's new contractor; and
- the time that the directors of Fabsert, who had been substantially dependant upon the ABB contract, would require to find new employment. They were aged 44 and 58 so that their employment options for the immediate future were limited.
In the absence of actual notice the Court ordered ABB to pay the remuneration that Fabsert would have otherwise earned over the 12 weeks notice period.
Avoiding unfairness in the engagement, and management of contractors
There are no hard and fast rules, but here are the three fundamentals:
- Don't engage workers as contractors if, legally, they are more appropriately engaged as 'employees'. Not only is there a risk that the engagement will be 'unfair', there is a further risk of prosecution for a penalty for contravention of the sham contracting provisions under the Workplace Relations Act (these are retained in the Fair Work Bill).
- Clearly and comprehensively document the arrangement, including the negotiations leading up to it. There is more to a sound contracting arrangement than a lick, promise and an ABN.
- The overall fairness of the proposed arrangements should be considered. Sensitive areas will include:
- remuneration arrangements; and
- termination provisions, particularly where the contractor has had to incur particular set-up or capital costs including, for example, the acquisition of particular plant or equipment, such as a vehicle.
Australia's Best Value Professional Services Firm - 2005 and 2006 BRW-St.George Client Choice Awards
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.