| Independent Contractors – Unfair Contracts Remedy - News Article 13/10/08
The Federal Magistrates Court has recently examined the “unfair contracts” remedy contained in the Independent Contractors Act 1996 (“the Act”) and issued a decision which provides guidance for those who are, or who deal with, independent contractors.
In Keldote Pty Ltd & Ors v Riteway Transport Pty Ltd, a services contract was entered into between three owner-drivers (“the drivers”) and the principal Riteway Transport Pty Ltd (“Riteway”). The contract provided that the drivers would transport goods at the request of Riteway. The drivers owned their trucks and were not the direct employees of Riteway, but rather acted as contractors.
The contract between the drivers and Riteway provided that Riteway could instruct the drivers to make changes to their vehicles, without any requirement for Riteway to contribute to the costs of such changes. Under this provision, Riteway in 2007 made the decision to require the drivers to purchase new and much larger vehicles, failing which the contract would be terminated. The drivers, however, argued that they could not afford to do this because of the large expenses involved.
Riteway interpreted the drivers’ refusal to upgrade their vehicles as being a failure to comply with the terms of the contract and consequently terminated the contract. The drivers subsequently commenced an action in the Federal Magistrates Court for a review of the contract.
Section 12 of the Act permits an aggrieved party to apply to the Court for their services contract to be reviewed on the basis that the contract is unfair and/or harsh. In reviewing the contract, the Court must have regard to:
- The terms of the contract when it was made; and
- To the extent permitted by the Act, other matters as existing at the time when the contract was made.
Pursuant to s12 of the Act, the drivers alleged that the contract was unfair or harsh for a number of reasons, but particularly that the contract failed to require Riteway to compensate the drivers for the costs to acquire new vehicles at the request of Riteway. Riteway argued that the Act only permitted the Court to look at the contract as at the date it was made, and that the drivers were asking the Court to review the contract in light of subsequent events.
The Court however disagreed with Riteway on this point. The Court held that in order to determine whether a contract was unfair or harsh at the time it was made, subsequent events can be considered. This was because the unfairness or harshness of a contract may only become apparent at a later date.
Therefore the Court agreed with the drivers that the contract was harsh or unfair in that it failed to require Riteway to provide adequate compensation for costs involved in upgrading the vehicles. The contract was subsequently amended so that the principal’s power to require the contractors to upgrade their vehicles was limited to those vehicles “having specifications reasonably equivalent to the vehicle to be replaced”.
Principals should be aware that their actions during the course of their relationship with contractors may give rise to a claim that the contract is unfair or harsh. This is despite the wording of the Act apparently limiting the Courts’ power to review the fairness of contracts only at the time of their creation. Therefore even if the contract is initially fair and just, the principal’s actions can render it as being either unfair or harsh.