The landscape for independent contractors in Australia is evolving with the introduction of a new unfair contracts jurisdiction under the Fair Work Act, set to commence on 26 August 2024. This significant development, embedded in the Closing the Loopholes Act number two, empowers the Fair Work Commission to hear and determine unfair contract claims made by independent contractors under certain conditions. This article breaks down the key aspects of this new jurisdiction, clarifying who it applies to, how it operates, and what it means for independent contractors navigating service agreements.

Table of Contents

• Who Does the New Unfair Contracts Jurisdiction Apply To?
• Defining a Services Contract
• Timing and Eligibility for Claims
• The Process for Handling Unfair Contract Claims
• What Constitutes an Unfair Contract Term?
• Scope of Terms and Workplace Relations Matters
• Remedies and Limitations
• Conclusion
• Frequently Asked Questions (FAQs)

Who Does the New Unfair Contracts Jurisdiction Apply To?

The new provisions are designed to address unfair contract claims by independent contractors, but not all contractors are covered equally. A critical threshold is the contractor high income threshold, which is yet to be determined and will be set in the regulations. Independent contractors earning at or above this threshold must take their claim to a court under the Independent Contractors Act. Those earning less will have access to the Fair Work Commission to resolve their unfair contract claims.

To bring a claim, the applicant must be a party to the services contract or an organization, such as a union, representing the industrial interests of the party. This applicant can be a natural person or a corporation, recognizing that many independent contractors operate through small companies. For instance, if Jim Smith provides services through his company, Jim Smith Pty Ltd, then the company itself would be the applicant in any unfair contract claim.

Defining a Services Contract

Understanding what constitutes a “services contract” is fundamental. According to section 15H of the Fair Work Act, a services contract:

• Is a contract for services, not a contract of service, meaning it applies to independent contractors rather than employees.
• Relates to work performed by an individual, even if the contract is with a corporate entity (e.g., Jim Smith Pty Ltd where Jim Smith is the individual performing the work).
• Has a constitutional connection, typically satisfied if at least one party is a constitutional corporation.
• May include conditions or collateral arrangements related to the contract but not forming part of it, guided by existing case law.

Timing and Eligibility for Claims

Claims can only be made for contracts entered into on or after the commencement date of 26 August 2024 (or earlier by proclamation). Contracts entered before that date, even if ongoing, are excluded from the new jurisdiction. Importantly, there is no qualifying period of service required to make a claim; a contractor can apply the day after entering a new contract.

While there is no explicit time limit on when a claim can be made, past judicial decisions under the Independent Contractors Act suggest that delays and potential prejudice to the other party may influence whether relief is granted. Additionally, claims may be made even after a contract has been terminated, possibly involving retrospective variation of contract terms, although how this will be treated in the Fair Work Commission remains to be seen.

The Process for Handling Unfair Contract Claims

The process begins with the filing of an application by the contractor or their representative, followed by responses from other parties to the contract. The Fair Work Commission is working on establishing forms and procedural rules to facilitate responses and streamline the process.

The Fair Work Act mandates that these procedures be quick, flexible, and informal. Initially, claims will be allocated directly to Commission members rather than conciliators, though this may evolve based on case volume and jurisprudence development.

Conciliation, a non-binding mediation process, will likely be the first step, where a member helps parties reach a mutually agreeable resolution. If conciliation fails, the matter proceeds to a final hearing. Conciliation sessions are confidential and may be conducted in person, by telephone, or via video conference.

What Constitutes an Unfair Contract Term?

The core of any unfair contract claim is whether the services contract contains one or more unfair terms. The Fair Work Commission focuses on the fairness of contract terms themselves—not on unfair conduct by a party under the contract.

For example, a term allowing one party to terminate the contract with just one minute’s notice may be deemed unfair if the contractor has been providing services for an extended period. The Commission may order such a term to be varied to a more reasonable notice period, such as one week or one month.

Conversely, claims about unfair treatment or communication, which do not stem from contract terms, are outside the scope of unfair contract claims.

Factors Considered in Determining Unfairness

• Relative bargaining power: For example, when a contractor must accept standard terms to secure work, potentially leading to unfair terms.
• Harsh, unjust, or unreasonable requirements: Such as excessively demanding work hours that are impractical or unsafe.
• Remuneration comparison: Whether the payment under the contract is less than what an employee would receive for the same work.
• Necessity to protect legitimate interests: For example, overly long post-contract restraint clauses (e.g., preventing work in the same industry for three years) are unlikely to be considered reasonable.
• Significant imbalance between rights and obligations: Contracts demanding availability 24/7 while allowing instant cancellation by the other party.

Scope of Terms and Workplace Relations Matters

Not all contract terms can be challenged. Only those terms that would relate to workplace relations matters if the relationship were an employment one may be set aside or varied. Workplace relations matters include remuneration, hours of work, and termination of contracts, but explicitly exclude areas like superannuation and occupational health and safety.

Remedies and Limitations

The Fair Work Commission has the power to set aside or vary all or part of a services contract that contains unfair terms related to workplace relations matters. However, unlike some other jurisdictions, the Commission does not have explicit authority to award compensation or monetary damages as part of its relief.

Conclusion

The introduction of the unfair contracts jurisdiction for independent contractors under the Fair Work Act marks a pivotal shift in protecting contractor rights in Australia. By enabling the Fair Work Commission to address unfair terms in services contracts for contractors below a certain income threshold, this jurisdiction offers a more accessible and flexible forum for dispute resolution.

Independent contractors, especially those operating through small companies, should carefully review their contracts and be aware of their rights under these new provisions starting from 26 August 2024. Understanding what constitutes an unfair contract term and the process for lodging claims will empower contractors to seek fair treatment and contractual terms that reflect equitable bargaining power.

Frequently Asked Questions (FAQs)

Who can make an unfair contract claim under the new jurisdiction?

Independent contractors who earn less than the contractor high income threshold and are parties to a qualifying services contract can make unfair contract claims. Claims can also be made by organisations representing contractors, such as unions.

What is the contractor high income threshold?

The contractor high income threshold determines whether a contractor's unfair contract claim goes to the Fair Work Commission or a court under the Independent Contractors Act. This threshold is yet to be set and will be included in regulations.

Can claims be made for contracts entered into before 26 August 2024?

No, claims can only be made for contracts entered into on or after the commencement date of 26 August 2024 (or earlier by proclamation).

Does the Fair Work Commission award compensation for unfair contract claims?

No, the Commission can set aside or vary unfair contract terms but does not have express power to award compensation or monetary damages.

What kinds of contract terms might be considered unfair?

Terms that create a significant imbalance, impose harsh or unreasonable conditions, reflect unequal bargaining power, or are unnecessary to protect legitimate interests may be unfair. Examples include extremely short termination notice periods or overly broad post-contract restraints.

This article was created from the FWC video "Unfair contracts jurisdiction for independent contractors"