While there has been much discussion about some of the changes arising out of the Closing Loopholes reforms, an area that has received relatively little attention, but which may have a big impact, is the Fair Work Commission (FWC)’s new unfair contracts jurisdiction, commencing on 26 August 2024.
This new Part of the Fair Work Act 2009 (Cth) (FW Act) establishes a framework for dealing with alleged unfair contract terms within services contracts. This is new territory for the FWC, which has not previously had a role in regulating the relationship between principals and independent contractors in this way.
What does the new jurisdiction involve?
A person who is a party to a services contract (or their union) will be able to apply to the FWC for an order granting a remedy because of an unfair contract term in a services contract.
Such an application can only be brought on behalf of a person who earns less than the independent contractor high-income threshold [1]. This amount will be prescribed by the Fair Work Regulations, but is anticipated to be set at a similar, if not the same, level as the high-income threshold for employment purposes.
Not all terms of a services contract may be challenged as being unfair. Rather, only terms which in an employment relationship would relate to “workplace relations matters” are open to be assessed by the Commission for unfairness. Workplace relations matters take a defined meaning, and include matters such as remuneration, hours of work, and termination.
If the FWC is satisfied that a services contract includes one or more unfair contract terms, it can make an order to either:
- set aside all or part of a services contract; or
- amend or vary all of part of a services contract.
What about the Independent Contractors Act 2006 (Cth)?
These upcoming changes to the FW Act may, at first glance, appear to impede upon the territory of the Independent Contractors Act 2006 (Cth) (IC Act), which is similarly concerned with protecting and recognising the freedom of contractors that enter into services contracts.
However, the provisions within the IC Act have rarely been used, for reasons including because it is viewed to be relatively inaccessible for contractors seeking recourse for unfair contract terms, because of the inherent costs in bringing an application in the Federal Courts.
The FW Act will provide similar grounds to what is presently in the IC Act for assessing whether services contracts are unfair and also offer similar remedies (relevantly, the ability to vary or set aside a services contract).
The unfair contracts jurisdiction in the FW Act has been introduced with the intention of operating as a cheaper, faster and more accessible means for contractors (earning less than the threshold amount) to obtain relief for unfair contracts terms. To take into account the new framework in the FW Act, from 26 August 2024, the IC Act will also be amended so that only contractors earning above the contractor high-income threshold can pursue remedies under the IC Act.
Importantly, there are a number of fundamental differences between the two Acts, including that:
- the relevant review body under the IC Act is the Federal Courts (as opposed to the FWC under the FW Act);
- the IC Act applies to services contracts entered into on or after 1 March 2007 (as opposed to services contracts entered into on or after 26 August 2024, under the FW Act); and
- only a party to the contract can make an application under the IC Act (as opposed to an industrial organisation’s ability to make an application under the FW Act).
Given this, it is expected that there will be an increase in unfair contract claims from independent contractors.
How the FWC will approach the task of determining unfair contract terms
The establishment of an unfair contracts jurisdiction within scope of the FWC’s powers is an interesting development in industrial relations law, that seeks to expand the protections contained within services contracts, when independent contractors historically have had limited access to certain rights and entitlements that employees did, particularly under the FW Act.
For the first time, the FWC has capacity to look at – and set aside, vary or amend – the terms and conditions governing working relationships outside of employment.
In determining whether a term of a services contract is unfair, the FWC may consider:
- the relative bargaining power of the parties;
- whether the contract as a whole displays a significant imbalance between the rights and obligations of the parties;
- whether the term is reasonably necessary to protect the legitimate interests of a party;
- whether the term imposes a harsh, unjust, or unreasonable requirement on a party;
- whether the total remuneration for performing work under the contract is less than that of regulated workers or employees performing similar work; and
- any other relevant matter the FWC considers appropriate.
While the relative bargaining power of the parties will be assessed as at the time that the services contract was formed, the remaining factors, going to the question of whether the contract terms, are unfair are assessed at the time the FWC hears the application.
The FWC is empowered with a broad discretion to set aside, amend or vary a services contract. While the FWC cannot award compensation for an unfair contract, an order could include a variation to the services contract to increase payments made to a contractor.
Notwithstanding that this is a new jurisdiction for the FWC, it has indicated that it will have regard to previous jurisprudence on unfair contract terms in other jurisdictions.
In particular, there are cases of the Federal Court of Australia where services contracts have been varied to provide for new terms which have the effect of providing additional benefits under the contract. For example, in a matter involving the termination of the services contract between an independent insurance agent and the principal insurance company that engaged them, the Court decided that the terms dealing with termination were unfair and made an order varying the contract to provide for payment of an amount $5,000 triggered upon termination of the services contract. The variation had the practical effect of providing the contractor with compensation.
Orders made by the FWC varying or setting aside contract terms cannot be enforced by the FWC. If there is not compliance with the terms of the services contract as varied, the enforcement of that contract would be pursued through the Courts.
What this means for business
Given the informality and accessibility of the FWC process, it’s likely that businesses will face increased litigation from contractors.
This expansion of the law poses additional challenges for businesses as they will need to re-evaluate and potentially consider amendment of their current services contract terms to mitigate any claims of unfairness in the terms.
[1] At the time of publication, the independent contractor high-income threshold is not yet available.
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The views expressed in this article are general in nature only and do not constitute legal advice.
Please do not hesitate to contact us if you require specific advice tailored to the needs of your organisation in relation to the implications of these changes for your organisation.