A Full Federal Court has found that an independent contractor can obtain damages in relation to retrospective breach of an independent contract which has been varied on the basis of unfairness under the Independent Contractors Act 2006 (Cth) (IC Act).

Implications for employers

A previous decision, Informax International Pty Ltd v Clarius Group Limited (No 2) [2011] FCA 934, suggested that the IC Act offered little practical assistance to most independent contractors. In that case, Justice Perram found that damages were not available for past breaches of contracts varied under the IC Act. Instead, damages could only be obtained for breaches which occurred after the court made its order varying the contract to remedy unfairness.

However, a Full Federal Court has now corrected this situation, concluding that it is open to a court to both vary the contract and make an order for damages relating to breaches prior to the making of the order. Accordingly, principals need to remain conscious that the IC Act does offer substantive remedies to independent contractors where their contracts operate unfairly or harshly. This should be taken into account when preparing independent contracts.

Background: the IC Act

The IC Act allows most parties to a services contract (there are some exclusions, for example, most large bodies corporate are unlikely to be eligible) to, within 12 months of the contract ending, seek review of that contract on the basis that it is unfair or harsh. Unfairness grounds include that the contract is unfair; harsh or unconscionable; unjust; or against the public interest; avoids the operation of relevant industrial legislation or instruments; or provides for remuneration at a lower rate than that applicable to an employee performing similar work.

‌A “services contract” for this purpose is one to which an independent contractor (an entity or an individual) is party, which relates to performance of work by the independent contractor, and which has a requisite constitutional connection.

In reviewing a services contract under the IC Act, a court must consider only the terms of the contract and matters existing at the time when the contract was made. The court may consider a variety of factors, such as (but not limited to) any use of unfair tactics and the relative strength of the parties’ bargaining positions. A court may make interim and final orders to remedy apparent unfairness. It may, among other things, vary the contract or set it aside in whole or in part. Importantly, the IC Act states that such an order takes effect on the date of the order, or a later date specified in the order.

Background: the Informax litigation

In the Informax litigation, Ms Isabel Menano-Pires (IMP) (through her company Informax) entered into a contract with Candle Australia Ltd (now Clarius Group Ltd) (Candle) to place her in roles with Candle’s clients as an information technology project manager. Pursuant to a series of contracts between Woolworths and Candle, many effectively arranged by IMP herself, IMP performed project work for Woolworths. Eventually, IMP and Informax obtained a direct contract with Woolworths. Candle asserted that this was a breach by each of IMP and Woolworths of restraints in their respective contracts with Candle. Woolworths accepted this and terminated its relationship with IMP. IMP brought a claim that the relevant contracts were unfair.

Decision at first instance: liability

At first instance, Justice Perram found unfairness and ordered that the relevant contract be varied to state that Candle would not take any steps to enforce the restraints between certain key dates (we do not cover here the extensive consideration of the restraints themselves). Justice Perram deferred the matter of remedy to a later hearing.

Decision at first instance: remedy

On the question of remedy, Justice Perram, in contrast to the findings in decisions on the same and similar provisions, held that because an order may only take effect on the date of its making or a later date, he could not award Informax damages for breach of the varied contracts. Focusing on the strict wording of the relevant provisions, explanatory memoranda and some prior case law, Justice Perram concluded that the IC Act permitted him to order remedies for future breaches only.

While understandable on a strict construction of the relevant provisions, Justice Perram’s conclusion was problematic as it meant that a person with a terminated contract could not obtain damages for breach if that contract was varied for unfairness or harshness. Unsurprisingly, Informax appealed the decision to a Full Federal Court.

Decision on appeal

A Full Federal Court (comprised of Justices Besanko, Jagot and Bromberg) overturned Justice Perram’s decision, holding that:

  • it was important to consider not only the text of the relevant provisions and explanatory memoranda, but also the history, purpose and policy of the provisions in the context of the IC Act as a whole;
  • in relation to the historical origins of the provisions, power to enforce them had initially been granted to the former Australian Industrial Relations Commission, which had an accepted capacity to make orders which operated prospectively but which remedied matters arising prior to the date of the order. Further, older case law on very similar antecedent provisions suggested remedies for past unfairness were available. If Parliament had intended to change this position, it would have altered the provisions accordingly;
  • in relation to the purpose and policy issue, the IC Act was designed to be remedial and beneficial and so should be interpreted liberally;
  • the text of the relevant provisions could be interpreted differently than proposed by Justice Perram. The IC Act states that an order takes effect on the date of the order, or a later date specified in the order. However, this does not mean that an order “may not have a remedial effect on events or transactions which predate the date upon which an order is made”; and
  • ultimately, the IC Act does permit unfairness or harshness to be remedied from the time the contract was made. To find otherwise would “render the scheme almost entirely inapplicable to contracts which have been terminated”.

Accordingly, Informax was entitled to seek an order varying the contract between it and Candle and which “had a remedial scope dating back to the contract’s formation but an operative effect from the date of the Court’s order”. The Court gave Informax an opportunity to apply for an order the court was able to make.