There are many challenges resource employers can face when entering a contractual arrangement with an independent contractor. AMMA employee relations consultant Con Deftereos discusses one recent case which illustrates when a contract term can be deemed unfair.
WHEN engaging an independent contractor, the company (or the principal) often relies upon the contract to regulate the relationship and impose various restrictions on the contractor which is fundamental to protecting the interests of the principal’s business.
On the other hand, there are also legal protections for contractors under the Independent Contractors Act 2006 (IC Act 2006) which allow a contractor to challenge the agreement if they deem it unfair and can seek remedies accordingly.
One area which often comes under scrutiny is restraint of trade following termination of the contract. This could involve restrictions on the contractor to seek employment with a business partner or customer of the principal post-contract.
A long standing dispute between Informax International Pty Ltd v Clarius Group Limited (Informax v Clarius) demonstrated the legal implications for a principal if there are terms in the contract that are deemed unfair by the courts.
In Informax v Clarius, an IT project manager (providing services under Informax) was assigned by a labour hire company (Clarius) to provide services for Woolworths. This arrangement continued for over 12 months and the contract was extended on four occasions.
Subsequently, Informax decided to contract with Woolworths directly despite a restraint clause in place under the contract between Informax and Clarius which restricted Informax from working directly for Woolworths for a period of six months.
In addition to this, Clarius had a separate contract with Woolworths which prevented the IT project manager from working directly with Woolworths for a period of 12 months; however, this was unknown to the IT project manager at the time.
Clarius raised the restraint provision with Woolworths and subsequently the Woolworths terminated the contract with the IT project manager.
Consequently, Informax had made a request under s.12 of the IC Act 2006, for the Court to review their contract with Clarius.
Justice Pellam in his first ruling made two key findings in respect of the restraint provisions:
- that restraint clause in the contract between Informax and Clarius was not enforceable because it was unreasonable in its operation; and
- the restraint clause in the contract between Woolworths and Clarius was characterised as unfair within the meaning of s.12(1)
Consequently, Justice Pellam varied the contract between Informax and Clarius with the effect of precluding Clarius from taking any further action to restrain the manager from working with Woolworths.
Considerations for what is an unfair term
In general terms, a contract term may be characterised as unfair for a contractor if it is:
- deemed harsh, unjust or unconscionable to the contractor
- against the public interest; or
- designed to avoid provisions of federal and/or state industrial law (i.e. sham contracting)
Where a person makes a request under s.12(1) of the IC Act 2006 for their contract to be reviewed, the Court will consider the following in making their determination:
- the relative bargaining strengths of the parties to the dispute
- whether any undue influence or pressure was exerted or unfair tactics were used against a party to the contract
- whether the contract provides for total remuneration that is or is likely to be less than that of an employee performing similar work, and
- any other matter it considers relevant.
As had occurred in Informax v Clarius, if the court finds that a contract term is unfair then they have the power to set aside the whole or part of the contract, or vary part of the contract.
Implications for AMMA members
It is imperative that upon entering a contractual arrangement with a contractor, AMMA members ensure provisions for services are presented in such a manner that the interests of the principal are balanced with equity and fairness towards the contractor.
AMMA members must be mindful that these types of contractual arrangements can often come under scrutiny. If any terms are deemed unfair then the court will have certain powers to vary the contract and in some cases award damages to the contractor which may also apply retrospectively.
AMMA can provide advice and support to members in relation to contractual arrangements with independent contractors. Please contact your local AMMA office to speak with an AMMA consultant.
For more information on this article, please contact Con Deftereos on (03) 9614 4777 or via [email protected].
Click here to read more on this case: Informax International Pty Ltd v Clarius Group Limited (No 2)  FCAFC 7 (6 February 2013)