If there is a significant imbalance in negotiating power between the independent contractors and employers, contractors have the right to request a court to set aside or amend the contract. Contractors are protected against unfair or harsh contracts as set out in the Independent Contractors Act 2006 (Cth) (the Act). We explain how employers can comply with their workplace obligations and the importance of fairly drafting service contracts.

What Should Employers Look Out For?

Employers should familiarise themselves with the factors that a court might consider when determining whether a contract is unfair. Under the Act, a court can set aside a services contract if it’s:

  • harsh or unconscionable;
  • unjust;
  • against the public interest;
  • provides a lower rate of pay to an employee performing similar duties; or
  • designed to avoid, or does, avoid Australia’s workplace laws, including the Fair Work Act.

Also, consider how you present the offer of work and whether the individual can choose to work instead as an employee.

When drafting and negotiating the services contract, take care to factor in the contractor’s commercial knowledge and bargaining power. The terms of the contract should not unnecessarily burden the contractor, or favour your interests. For instance, including an indemnity clause that only protects your business but not the contractor.

Make sure that the contract negotiations are not heavily weighted in your favour. For example, not giving the contractor enough time to review the contract and provide feedback. Otherwise, you risk the contractor exercising their rights under the Act and asking the court to overturn the agreement.

Sham contracts (i.e. disguising an employment contract as a contractor arrangement) are also examples of unfair contracts.

What Happens When Independent Contractors Challenge a Services Contract?

Under the Act, an independent contractor may apply to the Federal Court of Australia or the Federal Magistrates Court, to review a services contract because it is harsh or unfair. After reviewing the terms of the contract and the background of the parties, a court may order the business to either:

  • amend the contract;
  • remove certain clauses in the contract or make them ineffective; or
  • set aside the contract.

Unlike other court proceedings, the court does not award costs to the successful party. The court will only award costs where the contractor commenced proceedings to annoy the employer or does not have reasonable prospects of success. If one party incurs costs because of an unreasonable act or omission by the other party, the court may order the responsible party to cover some or all of those costs.

Key Takeaways

Employers should be mindful of the criteria set out in the Act so as to fairly draft services contracts with their independent contractors. Before entering into an agreement, ask:

  • What is the independent contractor’s relationship with the business?
  • What is their previous work experience?
  • What will the contractor be paid in comparison to an employee?
  • What is their level of commercial awareness and bargaining power?
  • Are the terms of the contract worded without unfair burden or prejudice?
  • Do the terms of the contract undermine any basic principles of contract law, equity, Fair Work legislation or relevant State or Territory employment laws?

Addressing each of these questions will help to ensure that you draft and negotiate legal and enforceable services contracts.