Corporate Commercial WRES Alert 23 April 1900 x500

Unfair Contract Terms regime crosses over into Fair Work jurisdiction

Mandi Xu, Jacqueline Vuong and Anthony Coorey

The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Closing Loopholes No. 2 Act) commenced on 27 February 2024 introducing a suite of significant workplace relations reforms. Please see our previous WRES alert on the key reforms introduced by the Act here.

These legislative reforms go beyond changing the laws governing employment relationships. For example, the Act provides a major shake up to Australia’s unfair contract regime as it opens up a new avenue for independent contractors to challenge the terms of their contracts.

New 'unfair contract' Fair Work jurisdiction

Under the Closing Loopholes No. 2 Act from 26 August 2024 (or a date by proclamation), the Fair Work Commission will have a new unfair contracts jurisdiction, which allows independent contractors earning below a ‘high income threshold’ to raise disputes with their principals in regarding the terms of their services contract.

The new contractor ‘high income threshold’ will be prescribed by the Fair Work regulations.

If the Commission is satisfied that one or more unfair contract terms exist in a services contract, an order may be made to either:

• set aside all or part of a services contract; or

• amend or vary all of part of a services contract.

The framework used by the Commission to determine if a term in a services contract is unfair includes considerations of:

• the relative bargaining power of the parties and whether the contract displays a significant power imbalance between each party’s rights and obligations;

• whether the term is reasonably necessary to protect the legitimate interests of a party;

• whether the term imposes a harsh, unjust, or unreasonable requirement on a party;

• whether the services contract as a whole provides for total renumeration that is less than what employees performing the same or similar work would receive, or less than what regulated workers performing the same or similar work would receive under a minimum standards order or guidelines; and

• any other matters the Commission considers relevant.

Existing unfair contract regime under the ACL

All independent contractors who fall within the definition of a consumer or a “small business” and who are a party to a ‘standard form contract’ will continue to have access to the existing ‘unfair contract’ regime under the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 (Cth), including to make a complaint to the ACCC (or their state/territory consumer production agency) or commence legal proceedings in the relevant court.


What this means for businesses

Citing the objective of generating a ‘quick, flexible and informal’ procedure for dealing with unfair contract terms, the Federal Government’s decision to give the Fair Work Commission new powers to resolve ‘unfair contract’ disputes between principals and independent contractors earning below the high-income threshold may lead to more litigation in this area.

For businesses, it is essential that your services contracts with independent contractors are reviewed periodically and amended where necessary to mitigate the risk of ‘unfair contract’ disputes.

These amendments introduce an additional risk factor for businesses, complementing the changes to the unfair contract terms regime that commenced on 9 November 2023, which broadened the definition of ‘small business’ and increased civil penalties for non-compliance. More information on the recent changes to Australia’s unfair contract terms regime are available to read about here.

If you are unsure of whether your services contracts contain unfair contract terms, now is the opportune time to undertake a legal review of those contracts and seek advice.


How can we help

For advice regarding how these changes may affect your business, please contact a member from our our Corporate & Commercial team or Workplace Relations, Employment and Safety team.

If you would like to stay up-to-date with Alerts and Insights from Russell Kennedy, you can subscribe to our mailing list here.

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