Contractors and Unfair Contract Disputes – A New Sheriff in Town?

by | 15 January 2025 | Bulletin

There’s no doubt about it.  Contractors get a raw deal compared to employees when it comes to legal rights.  They have no unfair dismissal rights, limited general protections rights and none of the safety net provided by the National Employment Standards and industrial awards or recourse to the Fair Work Commission (FWC).  Of course, there is a lot to be said for operating your own independent small business. But there is the risk of these arrangements looking very much like employment arrangements, particularly where the contractor is an ABN sole trader.  Yes, there is the Independent Contractors Act 2006 (Cth) but that has not been of much practical help due to the necessity to commence proceedings in the federal courts.

Well, the law changed on 26 August 2024 to allow contractors to take unfair contract disputes to the Fair Work Commission.  These rights are set out in Part 3A-5 of the Fair Work Act 2009 (Cth) (FW Act) in section 536MY (yes, really) and following sections.  These are the important features:

  1. There must be a services contract which relates to the performance of work by an individual (ie a contractor can be a company but the work must be done by an individual) – see section 15H FW Act. The provisions do not apply to a prospective contract.  We will have to wait and see whether the FWC decides they apply to a terminated contract;
  2. The changes only apply to contracts entered into on or after 26 August 2024;
  3. It doesn’t matter whether the contractor is a sole trader or company but at least one party must be a corporation;
  4. The contractor’s annual rate of earnings must be under the high income threshold, currently $175,000, which is adjusted on 1 July each year. It’s not clear whether the high income threshold is worked out on contractor gross income or nett income.  If the contractor earns more than the high income threshold, the claim must be made to a court under the Independent Contractors Act 2006 (Cth);
  5. The unfair term may be part of a collateral contract or arrangement that is not part of the services contract itself eg share option plans;
  6. Unlike unfair dismissal law, there is no qualifying or minimum period of service required;
  7. There is no time limit for making applications but delay and prejudice are relevant factors.

The jurisdiction is restricted to employment like unfair contract terms – see section 536JQ FW Act.  This includes terms relating to remuneration, hours of work, leave, termination, disputes and industrial action.  However, it excludes things such as superannuation, workers compensation, occupational health and safety, deductions, taxation and public holidays.  So not everything will fall under this heading.  Also, the focus is on the fairness of the terms of the services contract not whether some conduct under the contract is unfair.  Eg, if a contract provides for termination on one days notice by the principal, that may be unfair where the contractor has been providing services for months or years.  The contract could be varied by the FWC to require a longer minimum notice period.  But unfair conduct is not relevant, eg alleged bullying behaviour.

The FWC may take into account several factors in deciding whether a contract term is unfair – see section 536NB FW Act-  including:

  1. The relative bargaining power of the parties, eg does the worker have any option than to sign the contract;
  2. Whether the term imposes a harsh, unjust or unreasonable requirement on a party, eg does the contract require the contractor to work 10 hours say until midnight and re commence at 4am the next day;
  3. Whether the services contract provides for total remuneration which is less than employees performing the same or similar work would receive, ie is the worker receiving less than an employee under an award;
  4. Whether the contract term is reasonably necessary to protect the legitimate interests of a party to the contract, eg is a post engagement restraint of 3 years reasonable;
  5. Whether the services contract displays a significant imbalance between the rights and obligations of the parties, eg a worker must be available to perform work 24 hours a day 7 days a week but the principal can notify cancellation of a shift on 1 minutes notice.

The application and response forms are available on the FWC website – www.fwc.gov.au.  A conciliation conference is the likely first step in the process after an application has been lodged and a response provided by the principal.  The FWC can express an opinion or make a recommendation but these are not binding.  If the dispute is not settled, then the matter may be listed for hearing.  The FWC has the power to set aside or vary all or part of the contract which relates to a workplace relations matter but has no express power to award compensation.  In summary:

  1. The jurisdiction applies to services contracts commencing on or after 26 August 2024;
  2. The contract must relate to work by an individual;
  3. The dispute must relate to an employment like term;
  4. It must be the term that is unfair not conduct;
  5. The contractor must earn under the high income threshold;
  6. There is no power to award compensation;
  7. The jurisdiction doesn’t relate to a prospective contract and MAY relate to terminated contract.

Lastly, it should be noted that these unfair contract provisions are limited to contractors and cannot be used by an employee who will have to look for other dispute avenues.  It is early days but these provisions have significant potential as a practical means to address some of the more outrageous terms that sometimes arise in contractor agreements.

Please contact us if you would like any further information or help.