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Unfair Contract Terms Impermissible in Service Agreements with Independent Contractors

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The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Cth) will introduce an unfair contract terms regime that is similar to the existing regime in the Competition and Consumer Act 2010 (Cth) (“CCA”).

The regime is due to commence on a date to be proclaimed or otherwise on 26 August 2024.

Applicability to service agreements

The amendments will only apply to service agreements entered into after 26 August 2024 between principals and independent contractors earning less than the “contractor high income threshold”. Either party may make an application to the Fair Work Commission (“FWC”) to determine whether a term is an unfair contract term.

Contractor high income threshold” is a new definition inserted into the Fair Work Act 2009 (Cth) (“FWA”), and will be prescribed by the Fair Work Regulations 2009 (Cth). This amount has not yet been set but may be set at the same rate as the “high income threshold” under the FWA which is currently $167,500 for the 2023/24 financial year.

These changes are intended to create a “fair go all round” whilst also ensuring freedom of contract.

Elements of an Unfair Contract Term

The FWC will consider the following in determining whether a term is unfair:

  1. the relative bargaining power of the parties;
  2. whether the contract as a whole displays a significant imbalance in the parties’ rights and obligations;
  3. whether the term is reasonably necessary in order to protect the legitimate interests of a party;
  4. whether the term imposes a harsh, unjust or unreasonable requirement on a party;
  5. whether the contract provides for total remuneration for performing work that is:
    • less than what non-independent contractors would receive under minimum standards or guidelines (such as modern awards or enterprise agreements); or
    • less than the amount that employees performing the same or similar work would receive; and
  6. any other matter.

Items 2 and 3 reflect language used in the CCA, so relevant case law will be applicable.

Remedies

Upon finding that a term is an unfair contract term, the FWC may make orders to:

  • set aside all or part of the contract; or
  • amend or vary all or part of the contract.

Furthermore, the new regime is a civil remedy provision. Non-compliance with orders made by the FWC will attract a maximum pecuniary penalty of 60 penalty units ($18,780) for an individual and 300 penalty units ($93,900) for a body corporate.

Principals will be relieved that the regime will not incorporate the super penalties under the CCA for the inclusion of any unfair contract terms.

Preparing for these changes

Service providers should review all service agreements with independent contractors to identify terms that may:

  • cause a significant imbalance in the parties’ rights and obligations;
  • be harsh, unjust or unfair on an independent contractor,

and to consider whether:

  • each term is necessary to protect a legitimate interest; and
  • whether the remuneration to the independent contractor is fair when compared to remuneration for employees and other persons completing similar work.

Any potentially unfair terms should be amended or removed from the contract.

For independent contractors, from late August 2024, you should review your service agreements for any unfair contract terms before signing the contract.

Whether you are a service provider or an independent contractor, MST Lawyers can assist you with reviewing your service agreement or providing further information about changes in employment law.

Please contact our Corporate & Commercial Lawyers at corporate@mst.com.au or Employment Lawyers at workplace@mst.com.au.