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Not so long ago the federal government floated proposed ‘unfair contract’ amendments to the Trade Practices Act. The proposals whipped up a frenzy of concern particularly from the banking sector. Banks said the changes would dramatically escalate the cost and risk of providing loans, particularly to the small business sector.
The business-to-business part of the unfair contract proposals has been withdrawn but the government is proceeding with the business-to-consumer proposals. The Trade Practices Amendment (Australian Consumer Law) Bill 2009 will impose controls on the style, content and format of consumer contracts. The impact promises to be far reaching, cutting to the core of many business dealings with consumers.
Most large businesses selling to consumers will need to review their consumer contracts to put themselves ahead of the game rather than being caught in a panic after the laws begin.
My prediction, however, is that the pressure for business to business unfair contract provisions of some sort will build. In my role as head of Independent Contractors Australia, I’m currently dealing with a specific situation which demonstrates why.
A self-employed information technology consultant has come to us with a complaint concerning a contract he has had with the Department of Education, Employment and Workplace Relations (DEEWR). He provides high-end, highly specialised IT security services and was six weeks into a three month contract when DEEWR allegedly cancelled the contract without explanation or compensation.
As in all such disputes there’s a complex sequence of events to be considered. We’ve looked closely at the details and on our reading of the evidence we’ve seen, it appears the consultant had a clear three month contract which DEEWR may have breached. Ultimately it would be for a court to decide the facts, but the consultant’s situation demonstrates the pressure for business to business ‘unfair’ contract protections.
DEEWR allegedly disputes that a contract even exists, but if someone has done six weeks of work for which he was paid it would ordinarily be anticipated that a court would determine that a contract was in place. On the surface you’d think that this was a simple breach of contract issue which the consultant could pursue. But look at things from the consultant’s perspective.
To initiate a court action could easily cost the consultant is excess of $10,000. Then there is his time away from productive income earning work. For DEEWR there’s no such pressure. They’d simply hand the matter to their legal department where costs would be a budget annoyance, but no more. No individual in DEEWR is going to bear the personal cost of the action in the way the consultant would.
There’s further risk for the consultant. Reputation is everything in any professional situation. By taking legal action the consultant runs the risk of being unofficially black banned from future government work and could risk his private sector work opportunities as well. He faces a classic catch 22. He has legal rights, but the downsides of enforcement action are substantial.
We see this sort of situation frequently. It happens to architects, engineers, trades-people and many others who make up the 2.03 million self-employed people in Australia. It happens when people enter contracts with many large organisations, whether government or private.
At law and in managerial practice the issue is about proper application of commercial contract principles. This is not an employment matter nor does it need to be seen or treated as one. Commercial contract law embeds strong protections for all parties to contracts. But there can often be inherent ‘unfairness’ factors in the practical application.
Large organisations tend to draft contracts designed to favour the organisation, stripping away principles of balanced rights required under common law. For example they’ll insert clauses which enable the large organisation to change terms of the contract without reference to the other party. If tested at law, the courts would normally declare such terms void. I frequently see such clauses in contracts.
The self-employed person is in the position of accepting such unlawful terms or not accepting the work. Some lawyers argue this is just offer and acceptance of contract. But the point is that the alleged ‘contract’ is not in fact a legal contract even if someone accepts the work.
This issue has been around for some time. But as work through self employment arrangements becomes increasingly more significant in the economy, it’s predictable that demands for action will escalate. There are strong parallels to consumer rights, because self-employed people are often in ‘consumer-like’ circumstances even as a service supplier.
This is not an issue that threatens commercial contract principles or their operations. Rather it's an issue of applying the very essence of contract law and not allowing its destruction.
Ken Phillips is executive director of Independent Contractors Australia and author of Independence and the Death of Employment.
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1 Comment
Don Gilbert wrote:
Ken Phillips' article is spot-on. (See The law is failing small contractors, September 17).
He cites a specialised contractor whose contract was cancelled early without compensation with a government department.
He says as self-employment becomes more significant that there are strong parallels between self-employed and consumer rights.
I have called on the Queensland government to legislate to give specialist retail valuers whose services they engage immunity for having our determinations attacked by opportunistic law firms (legislated in New South Wales and Victoria).
These are not our disputes; we are engaged to settle them. One young gun decided to attacked me.
After making sure that I had not erred (this is a difficult area 'Market rent: what is it?' and 'Settling rental disputes' – I am the author of both).
I went on the front foot, and built my case on unconscionable conduct; loss of opportunity cost; damage to brand; and copied the government in and The Law Society.
I kept the pressure up, demanded a meeting with the aggressive principal, in his offices.
No show. I eventually got my apology.
But the Retail Shop Leases Registry of Queensland has not given me an appointment since then; back to Mr Phillips' article. This law firm damaged my 'brand' and all I was doing was standing up for myself. But most technical people do not know their rights. And this is a building area, to settle commercial disputes by experts who understand their specialty areas well.
It will also stop massive bubbles from building i.e. expert determination for a commercial dispute is 'a micro solution to a macro problem'.
Defending oneself, is time consuming, negative energy; but one should not be bullied for providing a valuable service to commerce and industry?
I hope this adds weight to the article.
18 Sep 2009 7:02 AM
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