Contracts - "Unfair and Harsh Contracts" by Eddy Neumann

Independent contractors now have access to a new national system for settling disputes over unfair and harsh contracts with the commencement of the Commonwealth Independent Contractors Act 2006 (?the Act?) on the 1 March 2007.

The principle objects of the Act are to:

• Protect the freedom of independent contractors to enter into service contracts.
• Recognise independent contracting as a legitimate form of work arrangement that is primarily commercial.
• Prevent interference with the terms of genuine independent contracting arrangements.

The Act achieves its objectives by providing for the rights, entitlements and obligations of parties to a service contract to be governed by the terms of those service contracts. Under the Act, a service contract is a contract:

• To which an independent contractor is a party; and
• That relates to the performance of work by an independent contractor; and
• Which has the required constitutional connection - that is, at least one party to the contract is either the Commonwealth or a corporation incorporated in Australia or has the stipulated territorial connection.

The Act establishes an unfair contracts jurisdiction. The Federal Court of Australia now has the power to review a service contract if it is alleged that the contract is unfair or harsh.

Section 9 of the Act outlines the following grounds of unfairness in relation to a service contract:

• The contract is unfair;
• The contract is harsh or unconscionable;
• The contract is unjust;
• The contract is against the public interest;
• The contract is designed to, or does, avoid the provisions of the Workplace Relations Act, a State or Territory industrial law or an award;
• The contract provides for remuneration at a rate that is, or is likely to be, less than the rate of remuneration for an employee performing similar work.

When reviewing a service contract, the Federal Court will consider the following factors:

• The terms of the contract when it was made; and
• The relative strengths of the bargaining positions of the parties to the contract and, if applicable, any persons acting on behalf of the parties; 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; and
• Any other matter that the Court thinks is relevant

If the Federal Court concludes that the contract is unfair or harsh, they may set aside the contract in whole or part or make an order to vary the contract. The unfair contracts jurisdiction created under the Act is far more limited than the jurisdiction that currently exists in New South Wales and Queensland.

The changes under the Act will be phased in over a three year period. The Act will apply sooner if a service contract expires or the parties agree that the service contract will be regulated by the Act. If a person starts work as an independent contractor after the 1 March 2007, they will come under the Act immediately while for others, the changes will come into force automatically on the 1 March 2010.

The new unfair contracts regime that has been set up by the Act has yet to be considered by the Federal Court. The Act requires that only a person who is a party to the service contract can take a case to court, which means unions and employer organisations are prohibited from making an application on behalf of a party to the contract.

The new Act will streamline the legislation in relation to independent contractors and override the common law principles in relation to unfair and harsh contracts that have been formulated over the years. The Federal Government has implemented a piece of legislation that will negate the common argument of whether a party is an independent contractor or an employee by the removal of the State deeming provisions. The State deeming provisions allowed the Court to consider the circumstances of a person's employment when determining whether they were correctly classified as an independent contractor. If the Court was of the opinion that the circumstances of the employment were such that the person was actually an employee, they could then deem the person to be an employee, regardless of any supposed independent contract.

The Act cements the principle that independent contractors are not to be treated the same as employees. In doing so it allows employers to be more secure in entering into service agreements with independent contractors that cannot be overruled by the Courts.