An independent contracting relationship can be beneficial for both parties; the principal and the contractor. Most importantly, they are flexible! However, Resolution123 often comes across independent contractor agreements that are not fair on both parties. We continue to see contractors taken advantage of by principals.
Independent contractors – do not fear! While employees are entitled to a wider range of entitlements, contractors can also be protected by statute and the common law. This article will discuss the protections available to independent contractors, and how to access them.
So what is a term that could be considered unfair? As an example, Resolution123 recently had a client whose contract was terminated by the principal. It included an unreasonable notice period. After being in a relationship with the company for over a decade, he was given a week’s notice.
Are you an independent contractor or employee?
The first step is to determine if you are in fact an independent contractor. See our previous post, or contact us, for assistance: The whole truth – are you an employee or independent contractor
The Independent Contractors Act (ICA)
The ICA applies to contracts for services provided by independent contractors. It allows a Court to review a services contract, on either or both of the grounds, that the contract is unfair or harsh. The ICA defines a services contract as a contract for services:
- To which an independent contractor is a party;
- That relates to the performance of work by the independent contractor; and
- That has the requisite constitutional connection.
In respect of (c), the constitutional connection requires at least one party to be a constitutional corporation, of that the contract in question was entered into in Australia, or the work is wholly or principally to be performed in Australia.
Keep in mind that section 14 of the ICA precludes an independent contractor from bringing an action under the ICA if proceedings have commenced under another statute. An election must be made.
Under section 9 of the ICA, each of the following grounds will be considered in determining whether a contract is unfair:
- Is the contract is unfair?
- Is the contract is harsh or unconscionable?
- Is the contract is unjust?
- Is the contact against the public interest?
- Is the contract designed to, or does it, avoid the provisions of:
- (i) The Workplace Relations Act 1996; or
- (ii) A state of Territory Industrial law; or
- (iii) An award, agreement or other instrument made under a law referred to in (ii)
- Does the contract provide for remuneration at a rate that is, or is likely to be, less than the rate of remuneration for an employee performing similar work?
In determining this, a Court may consider:
- The relative strengths of the bargaining positions to the contract; and
- Whether any undue influence or pressure was exerted on, or any unfair tactics were used against a party to the contract; and
- Whether the contract provides total remuneration that is, or is likely to be, less than that of an employee performing similar work;
- Any other matter the Court thinks is relevant.
A great benefit of bringing a claim under the ICA is that the applicant does not incur the risk of a costs order. Section 17 of the ICA states that a party to the proceedings in a matter must not be ordered to pay costs – including all legal and professional costs, disbursements and witnesses – incurred by any other party to the proceedings.
If the Court does determine the contract is unfair, it may make an order either varying or setting aside the contract.
The Common Law
An independent contractor, as a party to a contract, can bring a contractual claim under the common law against the principal. This requires the contractor to make an application to the Court, not under any legislation, asking them to consider the contract.
In the case of reasonable notice, there are a number of cases that support an argument that a reasonable notice period will be implied by the Court into an independent contractor contract.
- In Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd, a six month notice period was implied based on a fifteen year working relationship.
- In Adrians Transport Pty Ltd v Pacific Dunlop Ltd t/as Olex Cables, a three month notice period was required to wind down business relationships arising out of the contract.
- In Kirchner v Mayne Nickless Ltd, an eight month notice period was implied based on nine years of service.
- In Husain v O & S Holdings (Vic) Pty Ltd, a six month notice period was found to be reasonable.
- In Pacific Products v Howard, a ten month notice period was implied.
In each case, the Court will look to the individual circumstances and characteristics of the parties and their contractual relationship.
The Australian Consumer Law (ACL)
The ACL will provide protection from unfair contract terms in small business contracts. Small business contracts are those in which one party is a business that employs fewer than 20 people. Section 24 of the ACL provides that a term is unfair if it:
- Would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- Is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- It would cause detriment (whether financial or otherwise) to a party if it were applied or relied on.
These protections are only available for small business contracts entered into after 12 November 2015.
The ACL also protects small businesses from unconscionable conduct. Section 22(2) outlines the matters a court will have regard to when determining if the conduct of an acquirer for services from a supplier is unconscionable. The threshold for unconscionable conduct is extremely high.
If you are an independent contractor, in a contractual relationship you think is unfair, there are many options available to you. Each has its own pros and cons, and you should seek legal advice before commencing proceedings. Contact Resolution123 to talk to us about any concerns you have as an independent contractor.
Check out our article on Worker deemed employee not an Independent contractor