The long standing Court battle between Caterpillar and its Australian distributor Gough & Gilmour had its latest instalment in the Court of Appeal last month with the Court of Appeal finding that the distribution agreement was not a contract for the performance of work in an industry. But comments from the Bench about franchising agreements means the struggle still has someway to go.

David Gough and Anthony Gilmour were the owners of, and worked fulltime as, the senior executives of Holdings Limited. In 1991 Caterpillar (the applicant) entered into three Dealership Agreements with Holdings for the sale and servicing of the applicant’s construction and mining equipment. When Caterpillar terminated their dealership agreement, Gough and Gilmour lodged an unfair contract claim in the Industrial Relations Commission of New South Wales alleging that the dealership agreement was a contract for the performance of work in an industry and that it was unfair.

As we reported in earlier Franchising Focus editions, the IRC determined that the contractual arrangement was unfair and made orders varying the contractual arrangement. Caterpillar unsuccessfully appealed the decision to the Full Bench of the IRC. Caterpillar then challenged the jurisdiction of the IRC to order the variation of the contractual arrangements. Caterpillar’s principal argument was that the IRC had no jurisdiction to determine the proceedings because there was no “contract whereby a person performs work in any industry.”

The NSW Court of Appeal confirmed that the words “whereby a person performs work in any industry” within section 106(1), must be read and understood in an industrial context. The definition of “industry” in the IRA means “any trade, manufacture, business, project or occupation in which persons work.”

The Court of Appeal had no doubt that Gough and Gilmour performed work. However, the main issue was whether the way in which the contract or arrangement was performed was “in accordance with” or “according to” the Dealership Agreements. The Court found that it was not.

Importantly, however, the Court of Appeal accepted that there are cases where the working proprietor of a franchise or dealership do perform “work in an industry” in accordance with the dealership or franchise agreement. However, the surrounding circumstances must be reviewed to assess whether the relationship is analogous to an employee/employer relationship and is capable of falling within the industrial context required by the section. In the case of Gough and Gilmour, they were the only investors and occupied the senior managerial positions of a very large dealership. Gough and Gilmour were entrepreneurs who conducted a business of significant scale involving tens of millions of dollars of capital investment with 700 employees over numerous locations. As a result, the Court of Appeal decided that Gough and Gilmour did not “perform work in an industry” “according to” the Dealership Agreements within the meaning of section 106 of the IRA. The range of activities to be undertaken by Gough and Gilmour, as envisaged by or required by the agreement or arrangement, was devoid of any “industrial” content, and therefore lacked the necessary “industrial element” in their work required for a section 106 claim to be upheld.

The decision is yet another reminder to franchisors to review their franchise agreements to remove terms that may give it the "industrial character" which will attract the unfair contract jurisdiction.

It is rather ironic that the unfair contract jurisdiction which has its origins in employment arrangements, as a result of successive legislative reforms in workplace relations laws, no longer applies to employment agreements or contractor agreements, but potentially applies to franchise agreements.