A standard form contract is one that “has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms”. ‘Standard form’ contracts are usually used by larger employers that require a regular and rapid turnover of labour or by labour hire agencies that need a pool of similarly positioned contractors to hire out. Standard form contracts are attractive for the uniformity, efficiency and administrative ease that they provide. The necessary consequence of that efficiency is that these contracts are often drafted on a take it or leave it basis.
Interaction with the Fair Work Act
For employees, there are no prohibitions against being offered a contract on a take it or leave it basis where the person has not yet been engaged by the employer. This is in part due to the fact that the employer has very little in the way of legal obligation owing to the employee in the pre-employment period as the legal relationship commences upon agreement. However, because the Fair Work Act strictly and expansively regulates the employment relationship, the propensity for a ‘take it or leave it’ contract to be unfair is limited. The contract, for example, is required to fulfill certain minimum standards as mandated by the 10 National Employment Standards, which will include: 
- Maximum weekly hours
- Requests for flexible working arrangments
- Parental leave and related entilments
- Annual leave
- Personal/Carer’s leave and compassionate leave
- Community service leave
- Long service leave
- Public holidays
- Notice of termination and redundancy pay
- Requirements to receive a Fair Work Information Statement
A ‘take it or leave it’ contract may, however, offend the obligations owing to an employee by an employer if it is offered to, or imposed on them, during the course of employment.
Variation to terms of employment
For one, it may be considered an unfair variation of terms. Generally, a variation of contract will not be valid unless it has been reached via mutual consent between the parties or by the employer enacting a contractual clause empowering them to unilaterally alter the original contract. However, where the terms of the original are deemed to impose fundamental obligations, a unilateral change of these obligations may be considered a repudiation of the contract by the party seeking to enforce the change. If, for example, an employee was forced into a new role that results in a significant diminution of status without reasonable choice, the change may signal an intention that the employer does not intend to be bound by the original contract. This will be the case where an employer proposes:
- A significant reduction in pay, responsibilities or status; or
- A significant change in the nature of an employee’s duties provided it does not fall within the reasonable scope of employment.
A contract that is repudiated may be considered a constructive dismissal, which may result in reinstatement of the original contract or compensation in unfair dismissal.
Another situation arises where a contract is extended on a ‘take-it or leave-it’ basis as a means to replace the original employment contract. If the new contract is framed so as to offer a role that is wholly different to the one originally contracted for, it may constitute a redundancy. A redundancy describes the situation that arises where an employer no longer requires the duties of the employee to be performed. In Australia, a person whom is made redundant is entitled to redundancy pay (as calculable per the relevant award). If the new contract is not accepted and the original is continuing, the employee will have a claim to full redundancy entitlements. If the contract that intends to provide different employment is accepted, redundancy pay can be reduced if the employer finds acceptable employment for the employee. What is considered ‘acceptable employment’ is a matter for the FWC to determine. In CSSU, Commissioner Williams found that reemployment resulting in a 19% reduction in pay, a reduction in status and the requirement that the employee travel further distances (70km from her residence) was an unacceptable change to the contract, with the effect that redundancy pay was due.
The situation for Independent contractors is different. Independent Contractors are persons that provide their services only under the terms specified by a relevant contract. As a result, they preserve their own control as to the performance of the contract, and the Fair Work Act does not apply.
The Independent Contractors Act 2006 does make provision for ‘unfair’ contracts. An unfair contract is where a person performs work on terms that are considered ‘unfair’ or ‘harsh’. The courts will consider, in considering whether a term is ‘unfair, the bargaining power of the relative parties, whether remuneration is less than what an award employee would receive, any undue influence exerted over the contractor and any other relevant matters. Importantly, the Court will limit this enquiry to the form of the contract and immediate circumstances at the time the contract was engaged.
In Keldote Pty Ltd & Ors v Ritway Transport Pty Ltd , for example, a claim was brought by a number of contracted truck drivers. They claimed that a clause of the contract that permitted the company to “make a significant change to the equipment required to service the contracts” without any financial compensation was unfair. The company acted on this clause when it asked all workers to upgrade their vehicles every few years to much larger and more expensive vehicles without increasing the remuneration under the contract. The court found that the clause was unfair for it unilaterally allowed the company to directly vary terms affecting the contractors operating costs, while not providing changes to offset that cost (such as an on trip rate increase). The court ordered, under their powers to vary unfair terms, that the trucking company pay a trip rate increase as to offset the newly and unforeseeable costs.
Labour hire arrangements
Ordinarily where a contractor engages a hire labour agency, the only contract that can be considered unfair is the one existing between contractor and agency. The company or business hiring the employee from the hire labour agency does not enter a separate contract with the contractor. This is done so as a way to limit the company’s liability to that contractor and to 3rd parties for the work completed. Therefore, unfair contracts cannot usually be brought against the company. This position is far less certain after Informax International Pty Ltd v Clarius Group Ltd  FCA. In that case the Federal Court considered a contract between the labour hire agency (Calrius) and the Contractor providing its services to Clarius (Informax). Clarius provided labour to Woolworths under a separate agreement between the two companies, resulting in Informax providing its personal services to Woolworths. As a result of Woolworths no longer needing the specific IT work being engaged by Informax, suggestions were made by Woolworths that Informax could look for other work within the retailer. Subsequently, Informax directly contracted with Woolworths. Clarius objected on the grounds that the Clarius-Informax contract contained a restraint of trade clause prohibiting Informax from directly contracting with Woolworths, and a separate clause between Clarius and Woolworths requiring Woolworths to exclusively receive service through Clarius’ supply of labour. In his judgment, Justice Perram found that the restraint of trade clause was unfair for it was not reasonably justified by the circumstances of the relationship (pursuant to the restraint of trade doctrine). Clarius’ ability to achieve the same result by enforcing the exclusivity clause with Woolworths was also unfair by extension; being an unlawful and unbinding covenant on Informax. An order preventing Clarius from enforcing its exclusivity clause as a tool to restrain Informax was granted.
The takeaway is that, although a take it or leave it contract is valid, terms that unilaterally grant rights to one person may be considered unfair and unenforceable. Where a term is unfair it may be altered, the contract can be enforced as if the term is absent if it is possible to do so or, if it is not operable without the clause, the contract may be set aside.
Australian Consumer Law
The Commonwealth Government has also recently introduced changes to the ACL (Australian Consumer Law) with the effect that certain parties will soon need to ensure that any standard term contracts do not breach unfair term laws. These laws have applied to consumer transactions but will now apply to contracts where at least one party is a ‘small business’ supplying or purchasing services from another party under contract. A small business is that which employs less than 20 people and where the contract does not exceed $300,000 (or $1,000,000 if the contract is for more than one year). This definition captures many small businesses that require a contractor or a business that is hiring a contractor that is a small business themselves. Importantly, the provisions only apply to standard form contracts that include ‘take-it or leave-it’ contracts. A term will be unfair where it:
- Causes a significant imbalance in the parties’ rights and obligations under the contract;
- Would cause detriment (financial or otherwise) to a party if it were to be relied on; and
- Is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term.
In determining whether a contract is unfair, the court will consider the transparency of the term as presented, and will read the term in context of the entire contract. Some examples as provided by the Act itself include terms that:
- Only permits one party to avoid or limit performance of the contract;
- Only permits one party to vary, renew or terminate the contract;
- Penalises only one party for a breach or termination of the contract;
- Only permits one party to vary the upfront price payable under the contract without the right of the other party to terminate the contract;
- Permits one party to unilaterally determine whether the contract has been breached or to interpret the meaning of the contract;
- Permits one party to assign the contract to the detriment of the other party without that other party’s consent; or
- Limits one party’s right to sue the other party.
An unfair term will be void, but the contract remains on foot if the unfair term is severable. These proposed changes are likely to come into effect November this year. Existing contracts will only need to take notice if the contract is renewed, created or varied after November 12. The changes to the Act are likely to cause significant disruptions to businesses that regularly engage contractors via standard forms. It will require them to remove existing provisions that will likely now offend the Act or to change the severity of certain terms.
Notwithstanding the myriad of factors which should be considered when presented with a ‘take it or leave it’ contract, there are a few key points that one should always remember.
Firstly, employees have the right to try to negotiate the terms of their employment contract. The right to negotiate ones own terms of employment is a right that does not end but instead continues for the entire employment relationship. However this right is best exercised prior to commencement of employment as an employee scouted or headhunted by an employer holds a greater bargaining power than an employee already engaged with that employer.
Secondly, claims of duress, misrepresentation, unconscionable conduct or unfair terms are claims that have a very high threshold of proof. While these protections exist in statute, cases before the courts have shown that their application is strict and the threshold of evidence high. The presumption will typically be that unless there is strong evidence of a contravention of this type of prohibited conduct, then the terms of the contract will be binding. This is case whether or not the employee had an opportunity to negotiate the terms of their agreement. Feeling pressured to sign a contract will not usually constitute duress.
Finally, an employment contract is, fundamentally, a contract like any other contract – agreed to, written down, read, and signed. It is very important that both parties to the contact fully understand all of the terms of the employment contract. If a member has any concerns about an employment contract, or doesn’t fully understand any of the terms included in the contract, then they should direct any questions to Professionals Australia. It is important that this is done prior to signing and before that member goes out on site.
About the Author
Joseph Kelly has had extensive experience in commercial litigation and workplace law, having advised employers and employees on all issues relating to industrial relations and employment law. Joseph has advised industry bodies, unions, employers and government and continues to run training and information seminars for legal practitioners. Joseph is currently the Principal of Kelly Workplace Lawyers. [Web: www.kwlawyers.com.au]
This advice and comments are provided as general information and should not be construed as legal advice. Separate legal advice relating to the interpretation and implication of this article for your individual circumstances should be obtained. Contact Professionals Australia’s Workplace Advice and Support Service on 1300 273 762.
 Australian Competition and Consumer Commission, https://www.accc.gov.au/consumers/contracts-agreements/unfair-contract-terms, accessed on the 1/04/16
 Part 2-2 of the Fair Work Act 2009
 Paul Fishlock v The Campaign Palace Pty Limited  NSWSC 531
 Children’s Services Support Unit (CSSU) Inc  FWC 7503
 Australian government, Fair Work Ombudsman, ‘Independent contractors and employees’, 2015
 Independent Contractors Act (Cth) 2006
 Independent Contractors Act (Cth) 2006; s12
 Keldote Pty Ltd & Ors v Riteway Transport Pty Ltd  FMCA 394 (16 June 2010)
 Informax International Pty Ltd v Clarius Group Ltd  FCA 183 (4 March 2011)
 Most relevantly under the Competition and Consumer Act 2010
 s24 Competition and Consumer Act 2010, (Cth) Schedule 2
 s25 Competition and Consumer Act 2010, (Cth) Schedule 2