More changes ahead for Unfair Contract Terms
Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024.
Did you know recent changes to the law may invalidate agreements with contractors that you use in your business?
From 26 August 2024, legislative changes will come into effect allowing the Fair Work Commission (FWC) to set-aside or vary contract terms contained in service agreements which it considers to be ‘unfair’ on an application by an independent contractor.
Independent contractors had the right to seek to challenge the operation and enforceability of unfair contract terms under the Australian Consumer Law (ACL) or the Independent Contractors Act 2006. These new legislative changes under the Fair Work Legislation Amendment (Closing Loopholes No.2) will provide an additional legal avenue for independent contractors to challenge unfair contract terms.
Under the changes, the FWC will have the power to set-aside or vary unfair terms on an application by an independent contractor if:
- In the year the application is made, the independent contractor’s annual earnings are less than the ‘contractor high income threshold’*; and
- The FWC finds that the services contract term is unfair relating to a workplace relations matter if the independent contractor were an employee.
* the contractor high income threshold is $175,000 and is adjusted annually on 1 July.
What is a ‘Service Contract’?
Services contracts relate to contracts for services performed by independent contractors. The services contract must have a ‘constitutional connection’. This is usually satisfied if a party to the contract is an Australian company.
What is an ‘Unfair Term’?
Similar to the recent changes to the unfair contract terms regime under the ACL, the FWC will determine if a contract term is unfair by considering (among other matters):
- Whether there is a significant imbalance in the parties’ rights
- Whether the term is reasonably necessary to protect the legitimate interests of a party
- Whether the services contract provides for total remuneration that is less than what employees performing the same or similar work would receive
What are ‘Workplace Relations Matters’?
The power of the FWC is limited to amending or varying ‘workplace relations matters’, including:
- Remuneration.
- Leave entitlements.
- working hours.
- industrial action by employees and employers.
- disputes between employees and employers.
These changes allow independent contractors to step away from the formal and expensive court processes they were originally restricted to and allow an additional legal avenue for them to challenge unfair contract terms.
The changes will come into operation from 26 August 2024.
It is important your business undertakes a review of any services contracts with your independent contractors. Aintree Group Legal would be happy to discuss your needs in reviewing these contracts. Contact us today!
This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your lawyer.
