While most businesses focus on preparing ahead of the new Right to Disconnect commencing on 26 August 2024, many are likely to have overlooked the commencement of the new provisions dealing with unfair contract terms for independent contractors.

If it’s slipped your mind, from 26 August 2024 many independent contractors will be able to apply to the Fair Work Commission to seek orders in relation unfair contract terms.  In short, if the Commission determines that a term of the contract is unfair, the Commission can set aside, amend, or vary all, or part, of the contract.

When determining whether a contract term is unfair, the Commission can take into account any matter it considers relevant, and this will typically include the following.

• The relative bargaining power of the parties.
• Whether the contract provides for remuneration that’s less than what an employee would receive for performing the same or similar work.
• Any significant imbalance in the contract between the rights and obligations of each party.
• Whether a specific term is reasonably necessary to protect the interests of a party.
• Whether the term imposes a harsh, unjust or unreasonable requirement on a party to the contract.

Except for the relative bargaining power of the parties, the above matters will be assessed by the Commission as they exist at the time of the application (and not at the commencement of the relationship).  In practical terms, this means a contract term can become unfair during the course of the relationship, even if it was not unfair at the time the contract was entered, or when the relationship commenced.

The power for the Commission to set aside, amend or vary a contract made between a principal and an independent contract is a broad and significant power.  For those who can remember back, there’s a clear parallel between these provisions and those of the unfair contract provisions within the NSW Industrial Relations Act.  Whether the Commission’s application of its new powers will yield similar outcomes to those of the NSW unfair contracts jurisdiction of the late 90’s and early 00’s is yet to be seen, but there’s a few things that we should keep in mind, a few things we should be doing now to manage the risks.

Firstly, a “contractor high income threshold” will be set.  Contractors earning above the threshold will not be able to access the provisions.  The threshold is not yet known, but will be published in the coming month.

Secondly, as with most applications, the practical reality is likely to be that contractors will typically only make an application when things have soured, or their expectations have not been met.  Where the character of the relationship was favoured by the principal more than the contractor, the risk of things souring will typically be higher.

Thirdly, the power only applies to terms of the contract which, if it was an employment relationship, would relate to workplace relations matters.  Perhaps self-evidently, this is likely to capture most of the terms that have practical relevance within the relationship, but it’s an important aspect to keep in mind when managing a dispute that may have arisen during the relationship, or assessing an application that has been made.

Fourthly, in the years since the High Court decisions in Jamsek and Personnel Contracting, there has been a general tendency to review and tighten the terms of independent contractor agreements to ensure the contract clearly demonstrates the relationship to be one of principal and contractor (and not employer and employee).  For many organisations, this is likely to have included emphasising the responsibilities and liabilities of the contractor, and minimising the obligations of the principal as it relates to matters around remuneration, the performance of work, and the worker.  In that context, now’s a good time to be reviewing your existing independent contractor agreements to identify and address any terms that are obviously unreasonable, disproportionate to what needs to be protected, or unduly onerous.

Finally, as with all things people management, there’s a clear need for strategic planning, clear communications, and the management of expectations.  Few workers complain when they’re happy and their expectations are at least being met.  That’s not an invitation for complacency around compliance, but it’s a hint that purposeful and active management that’s aligned to broader organisational culture is going to go a long way towards minimising the need to navigate these provisions within the context of a claim.

Chris Oliver, Director