In what is understood to be the first judgment under the Independent Contractors Act, three independent contractors operating as long-haul owner-drivers have had their contracts rewritten in the Federal Magistrates Court to remove unfair provisions.
Independent Contractors of Australia see this as a significant victory for independent contractors and for common sense. There are important lessons arising from the case for independent contractors and for businesses that engage independent contractors.
Summary of the case
Three owner-drivers, each of whom was structured as a company, supplied line haul trucking services between Melbourne and Sydney for the transport company Riteway. They were typical of many small owner-driver businesses. They were paid per run and their spouses did the books.
They did not have written contracts, but the terms of their commercial contract were taken to be the terms of an agreement between Riteway and the Transport Workers Union. It was this contract that was found to be unfair.
In early 2007, Riteway informed the men that they had to upgrade to B/double trailers or else their services would be terminated. The men were prepared to upgrade, but wanted to be paid a higher amount per Melbourne--Sydney run. The men wanted $1,500 per run, each way. Riteway was only prepared to pay $1,412 per run.
The men took an unfair contracts action under the Independent Contractors Act against Riteway. The Court found that the contract was unfair because it allowed Riteway to require that the men provide a truck that was considerably different from the one they had already provided under the contract.
The Court ordered that the terms of the contract be changed to remove the unfairness so that any replacement trucks had to have '...specifications reasonably equivalent to the vehicle to be replaced'.
General lessons from the case
This is the first test of the unfair contract provisions of the Independent Contractors Act. The Act came into law in early 2007. Independent Contractors of Australia is pleased with the outcome as it shows that the Independent Contractors Act (a world first) is effective. Independent contractors clearly have an avenue open to them to address contract problems they may have with larger clients.
The principle of contract balance: The court has stated that a commercial contract must demonstrate a balance between advantage and disadvantage to each party or else it can be declared unfair. ICA believes that this is consistent with the principles of commercial contracts. An employment contract does not have the balance, whereas a commercial contract must have this balance for it to be a genuine commercial contract. This is something that many people overlook when drafting commercial contracts. Where balance is lost, the Independent Contractors Act provides a good avenue for repair.
Practicality and speed of ensuring fairness: In the past, the legal processes for addressing imbalance have been complex and expensive. The Independent Contractors Act enables action through the Federal Magistrates Court, thereby reducing complexity, time and expense. This has worked in this case. ICA would like to see even simpler processes made available, such as through small claims tribunals that already exist in some States and Territories.
Achieving good results for both parties; Good for economic activity: ICA has always believed in the principle that commercial contracts must deliver good results for each party. This is the essence of sustainable, quality commercial practice. We believe that this case (Riteway) proves the worth of the Independent Contractors Act. We hope that this case and the Independent Contractors Act will encourage all people involved in drawing up commercial contracts with independent contractors to improve the quality of their contracts.
ICA has compiled more detailed commentary on this case to assist:
- Independent contractors to better assess their contracts (click here).
- Engagers of independent contractors to improve their contracts and avoid allegations of unfairness (click here).
- Understanding of the legal issues in the Independent Contractors Act (click here).
** ICA also has a link to a contract template provider that may assist in the drafting of contracts [PeopleInsite].
** For ICA's summary of the Independent Contractors Act (click here).
** For ICA's 'swinging pendulum test' to identify bona fide independent contractors (click here).
A strange twist: ICA Comment
Independent Contractors of Australia (ICA) was one of the main lobbyists in favour of the Independent Contractors Act and we made submissions about the detail we believed it should contain. We strongly supported the Act, including its unfair contracts provisions. We were strongly criticised, however, when we stated our belief that owner-drivers should be fully included in the Act. The Transport Workers Union was the shrillest critic of ICA and of the Independent Contractors Act.
The TWU lobbied the Howard Government repeatedly, and even conducted truck blockades of Parliament House. Eventually, owner-drivers in Victoria and NSW remained subject to specific owner-driver laws in those two States, laws which should have been overridden by the Independent Contractors Act. ICA is deeply critical of the NSW owner-driver laws because we believe that they disadvantage owner-drivers. ICA believes that most of the Victorian owner-drivers laws are helpful, save for one area.
In this Riteway case, it is instructive that the owner-drivers did not seek to have their problems fixed through either the NSW or Victorian owner-driver laws. Instead they chose the Independent Contractors Act and received a positive outcome. It demonstrates that the Act is effective, is relatively straightforward, and has user-friendly mechanisms for fixing problems.
The strange twist in this case is that the terms of the contract that have proven to be unfair were terms of an agreement between Riteway and the Transport Workers Union. It is a TWU agreement that has been found to be unfair.
