ICA Campaign - Integrity of Contract - Mr Contractor Case

The Mr Contractor Case
Letter 2: The Department

1 June 2010
Dear Y,

We draw to draw to your attention, and seek your review of, a situation concerning the managerial practices of the government department in the way it engages self-employed people and whether those practices are by their nature unfair.

The specific situation concerns a self-employed IT specialist, Mr Contractor, who was engaged to undertake work for the government department through a contract management company.

Arguably, Mr Contractor has been subject to unfairness in the way he has been engaged and treated. He is in dispute with the contract management company, but it affects the government department. The specifics of Mr Contractor's situation raise broader issues of managerial fairness in the way the government department conducts its affairs with self-employed people. We seek your review of the government department's practices in this respect.

By way of background, Independent Contractors Australia www.contractworld.com.au is a not-for-profit advocacy and lobbying group dedicated to securing fair and equitable treatment for self-employed people in Australia. Our primary focus is public policy issues, but we also look at how commercial custom and practice affects self-employed people in practical ways. Our interest is the achievement of good contractual arrangements that work to the mutual benefit of all parties.

We do not act for or represent Mr Contractor. Mr Contractor is a member of ICA but that membership (which is $50 per year) does not extend to us providing professional advice or representation over an individual's contractual circumstances.

Looking at the IT sector across Australia in more general terms, it is common for IT contractor engagement to occur through third-party contract management companies. The end user does not have a contract with the supplier of the services (the self-employed person) but with the contract management company. This is a legitimate and mostly efficient commercial arrangement. However, we (that is, ICA) receive regular complaints from IT self-employed people who say that the contracts that they are required to sign are inherently unfair. The contract management companies say that the contracts that they have reflect the terms forced on them by the end user.

When receiving complaints from self-employed people, it is rare for them to be prepared to commit to paper, as they fear reputational damage and being frozen out of work opportunities. In the case of Mr Contractor, he has been prepared to stand up for his contractual rights---which is why we write to you.

In summary, we think this is Mr Contractor's position:

The government department has a contract with the contract management company (we presume) for the supply of IT specialists from time to time.
The contract management company engages the IT specialists who do the work for the government department.
In this instance Mr Contractor sought to engage with the contract management company under his standard conditions of service in the absence of any other contract being provided.
The contract management company sought to impose a contract on Mr Contractor after he began work for the government department, some of the terms of which Mr Contractor was not prepared to accept.
Primary amongst the terms, we understand, was a clause that allowed the contract management company to terminate the contract at its sole discretion, even though the contract was for a fixed term. It is this clause, amongst others, that raises our concerns about unfairness.
Mr Contractor was dismissed by the contract management company after he began work for the government department because, fundamentally, he would not accept the terms of the contract which he considered to be unfair.
Mr Contractor is now in dispute with the contract management company.

We appreciate that in the strict legal sense the government department is not party to the dispute between the contract management company and Mr Contractor. There is presumably no contract between the government department and Mr Contractor, for example. However, from a practical and managerial perspective, Mr Contractor was doing work for the government department. It was the fact of this work that caused Mr Contractor to be engaged, and from which the question of unfairness arises.

Mr Contractor is in an odd situation. He is, like all self-employed people, the supplier of services/products but he is also in a consumer-like position. He is the weaker party presented with a take-it-or-leave-it, standard form contract. That contract has arguably inherently unfair terms in it---for example, the capacity of the corporate buyer to terminate the contract immediately and often without cause, even where the contract is for a fixed term/result. He has no practical capacity to negotiate the contract or to enforce any rights under the contract because the contract terms give him no rights.

If this were judged to be unfair, (for example, in a court) the government department is indirectly and probably inadvertently a party to the arguable unfairness.

In considering what is 'fair' for self-employed people, we draw in part from the principles established under the unfair contract provisions of the Independent Contractors Act. We see strong parallels with the ideas of fairness that apply under the franchising code. There are also strong, similar concepts of fairness under consumer law. Broadly, the principle is that the potentially weaker party in the transaction processes is entitled to measures of reasonable protection through the terms of the commercial contract.

The issue is one of ensuring reasonable balance in commercial relationships. Both parties should have responsibilities and liabilities towards each other. In relation to self-employed people, we do not seek special treatment or privilege for them but rather the right to secure reasonable terms in their contracts. This is the right we believe Mr Contractor was and is seeking.

In writing to you and raising Mr Contractor's situation we seek the following:

We would like to see a commercial resolution of Mr Contractor's situation without recourse to legal avenues. If it were appropriate for the government department to encourage a commercial settlement, we would be pleased for this to occur. But that is for the government department to judge what is appropriate.
We believe that the government department would be concerned should its managerial practices have indirect and inadvertent unfair outcomes. We would be pleased if the government department reviewed the way it engages self-employed people with a view to ensuring that fairness is operative in the contractual arrangements it employs. We would be particularly keen for the government department to ensure that the practices of those third parties its uses for engagement purposes (such as contract management companies) also comply with the fairness principles to which the government department subscribes.
There is a broader public policy issue of what constitutes contractual fairness for self-employed people. We believe that discussion of this is only in its infancy. We would be pleased if the government department were to place this as a key item for consideration in its ongoing policy development work and how this relates to good public policy design and outcomes.

As previously stated, our motivation is to see a successful resolution to Mr Contractor's situation, along with improvements in commercial custom and practice, together with good public policy design which may assist this.

We are available to assist where this might be constructive and would be happy to meet with the government department should this be thought desirable.

With thanks.

Regards

Ken Phillips
Executive Director
Independent Contractors Australia

Click here for the associated letter to the contract management company.

Here's an overview of the situation.

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Submitted Comments

In October 2010, Pam commented:

I have just read one of your posts on the website and wondered if you can offer any assistance. I have just signed a contract with a recruitment firm to undertake a government contract which I began on Monday. The recruitment company called me yesterday to say that the terms of the contract I signed: (Sole trader, hourly rate with my own personal injury and public liability cover) is not allowable under new tax laws for labor hire companies. They met with me today with a new contract of engagement, which I have not signed, which will reduce my hourly rate by $11 per hour, and expose me to a taxation difference that sees the weekly value of my contract reduced by $1000 in total.

I am wondering what I can do, and if I should go back to the recruiters and tell them it is their mistake, that the agreed hourly rate stands and that I will only sign the new contract under that condition?

I like the work and the rate is good, but it's a big drop in income if I accept the new terms they propose. Meanwhile the government agency employer is unaware that any of this is going on in the background and I am sure they do not want to lose me in this role.

Any ideas?

In October 2010, David wrote:

is a take-it-or-leave-it world. Agencies walk a fine line with the language they use with their sub-contractors though, to emphasize the reality without actually saying it and upsetting us sensitive high-self-sense-of-worth IT gods.

I left my last vendor because he was a creepy, sneaky bad business person (no time to review contracts, sneaking non-compete clauses in etc.) I only had to catch him out twiceÉ It's just part of being self-employed.

There are plenty of employee positions available (the majority) if you don't want to review contracts every 6-12 months.

My opinion: Suck it up. It's not for everyone.

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