Chapter 14 - Schedule 16 - Independent contractors
Outline of proposed amendments
Schedule 16 repeals sections 127A, 127B and 127C
of the WR Act. These sections currently allow the Federal Court to review
certain contracts engaging independent contractors to perform work, other than
private or domestic work. Under the provisions, a party to the contract (or
their representative) may apply to the Federal Court for review on the grounds
that the contract is unfair or harsh.
The Court, when reviewing the contract, can have
regard to: the relative strength of bargaining positions of the parties;
whether any undue influence or pressure was exerted on any of the parties, or
unfair tactics used by a party; and whether the remuneration paid under the
contract is less than that paid to an employee performing similar work.
If the Court establishes that the contract under
review is unfair or harsh, the Court may make an order varying the terms of the
contract or setting aside the whole contract or part of it.
Repeal of the unfair contract provisions
The Business Council of Australia noted that
paragraph 127C(1)(b) had been held by the High Court to be constitutionally
leaving the rest of the provisions ‘constitutionally uncertain’. The BCA also
pointed out that other federal and State legislation may provide a mechanism
for reviewing unconscionable contracts, including the Trade Practices Act
The Australian Chamber of Commerce and Industry
pointed out that the impact of the repeal ‘is significantly diminished given
the availability of review powers in other Federal and some State legislation’.
The Australian Catholic Commission for
Employment Relations, as an employer of independent contractors, said that it
supported these contractors having the ability to access to review of their
contracts in the Federal Court.
Unions, particularly those representing
employees in the transport and textile, clothing and footwear industries,
opposed the amendments. The Transport Workers’ Union gave evidence that many of
their members, who are ‘owner drivers’ of trucks, would be adversely affected
if the provisions were repealed.
The union has made application to the Court under sections
127A-127C on numerous occasions over the last few years, usually on behalf of owner
driver members whose contracts have been terminated unfairly. In such cases,
the provisions have proven to be a useful means of obtaining a more
satisfactory outcome for the owner drivers concerned, usually through
settlements achieved after proceedings have been issued. Only rarely have cases
brought by the Union under sections 127A-127C proceeded to a full trial and
determination by the Court.
There were concerns expressed by unions,
churches and community groups about the impact of the amendment on outworkers
in the textile, clothing and footwear industry:
Most outworkers are considered by their employers to be
independent contractors rather than employees so that they do not come under an
award. Removing the power to scrutinise contracts is fundamentally unfair and
there can be no doubt that this will further marginalise outworkers.
Other witnesses raised more general concerns
about unfair contracts being used to disadvantage vulnerable groups within the
community, such as women and people from a non-English speaking background, or
employees of small businesses:
It is of some concern that the new laws will repeal provisions
allowing the Federal Court to cancel or vary unfair contracts. Many of the
employment contracts brought to the Centre are amazingly one sided and bad.
Employment contracts do not evolve naturally from a fair bargaining position in
the first place. This means employers can contract workers with vastly unfair
conditions without any fears of redress.
Senator Murray raised the issue of parallel
developments to prevent people who are in reality working as employees from
being classified as independent contractors:
The Ralph tax reforms...have
indicated that the personal service area needs tightening up in terms of people
avoiding PAYE provisions by incorporation. Although they have not gone to the
extent of wiping it out completely, the proposed narrow definition would
deliver something like $500 million, according to the estimates, to revenue. It
has attraction to the Treasury. It also has the attraction of moving persons
who are really employees back into the employee sector.
during the course of the preparation of this report, has announced that it will
be implementing this particular Ralph recommendation.
The Government will adopt measures recommended by the Review to
contribute to the fairness and equity of the tax system. These include:
Restricting the ability of individuals to reduce tax by diverting the income
they earn from their personal services to an entity (a company, trust or
partnership). Known as the ‘alienation of personal services income’, this
undermines the income tax base and raises significant equity issues. The
proposed approach will treat the income of an entity that is earned through the
provision of personal services as the income of that individual for tax
purposes...This measure will commence from 1 July 2000.
A majority of the Committee believes that the
measures to be implemented by the Government in the next six months to ensure employees
are not inappropriately classified as independent contractors will considerably
alleviate the need for sections 127A-C of the WR Act.
In general, the evidence demonstrates that it is
normally more vulnerable workers who would require the protection of these
provisions (for example, outworkers). Under the Government’s new arrangements,
it will be much more difficult for people who are not genuine contractors to
work as independent contractors. Genuine independent contractors have more
bargaining power and would be less likely to need or want Federal Court
intervention to review the terms of their contracts.
A majority of the Committee also notes that
there would continue to be remedies available for cases of unconscionable or
misleading conduct under the Trade Practices Act 1974, and other review
mechanisms are available to independent contractors in some State
That sections 127A, 127B and 127C be repealed.
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