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The Federal Magistrates Court has awarded $36,000 in damages to an independent contractor after its contract was terminated without notice, in one of the first decisions on whether a corporate independent contractor can make an unfair contract claim under the Independent Contractors Act.
Fabsert Pty Ltd entered a contract with ABB Warehousing (NSW) Pty Ltd to manage a warehouse and unload containers in 2005, but two years later ABB terminated the contract without notice.
Fabsert claimed it was entitled to an extra $20,000 payment from ABB because it had worked under an unfair contract within the meaning of s12 of the Independent Contractors Act.
The company argued the contract was unfair because it had a significantly weaker bargaining position than ABB when negotiating the contract, that ABB had used unfair tactics – in particular, by promising to pay Fabsert $20,000 “once the business was up and running” – and that the $3,000 per week it was paid under the contract was less than an employee doing similar work would receive.
It also claimed a term should be implied into the contract requiring ABB to give reasonable notice of between six and nine months notice before terminating the contract.
Before it could have its substantive claim considered, however, Fabsert had to establish that the Independent Contractors Act applied to its contract with ABB.
Under s11(1)(b) of the Act, a services contract entered into by “an independent contractor that is a body corporate” cannot be the subject of an unfair contract claim unless the work to which the contract relates is “wholly or mainly” performed by a director of the corporation or a family member.
After considering the construction of the section, Federal Magistrate Rolf Driver ruled that “significantly more than half of the work under the contract” must have been performed by the two directors if their claim was not to be excluded under the section.
Federal Magistrate Driver said it was irrelevant that Fabsert has hired casual staff and subcontractors to pack and unpack containers because it was not central to the contract.
“It was their skill, experience and judgement that was brought to bear in the provision of warehouse management services which were the services to be provided pursuant to the contract,” he found.
But the issue was complicated by the fact that while of Fabsert’s directors had held that position since the work began, the other was only a director for the last five months of the two year contract.
Federal Magistrate Driver said he could not take into account the work performed by the second director before he was appointed, but he rejected ABB’s argument that only work performed by a director holding that position for the entire term of the contract was relevant.
He found that the two directors had contributed equally to the management of the warehouse, suggesting that the two of them combined had performed substantially more than half of the work required by the contract.
On that basis, Federal Magistrate Driver found, the services under the contract were performed mainly by Fabsert’s directors, as required by s11(1)(b).
Federal Federal Magistrate Driver gave short shrift to Fabsert’s argument that its contract with ABB was harsh or unfair, finding there was insufficient evidence that the directors would have earned more doing the work as employees and rejecting the view that it was in a weaker bargaining position than ABB when the contract was made.
He also dismissed Fabsert’s claim that ABB had used unfair tactics to get it to agree to the contract, an allegation stemming from evidence given by one of the company’s directors that ABB told him it would make an additional payment of $20,000 “once the business was up and running.”
He found that while ABB probably told Fabsert that it might make the $20,000 payment, it was not an unequiviocal promise that it would be paid.
He found that the representation was “too vague to be relied upon,” rejecting Fabsert’ submission that it would not have entered the contract if it had not been made.
Federal Magistrate Driver dismissed Fabsert’s claim that ABB’s representation about the $20,000 payment was misleading and deceptive conduct under s52 of the Trade Practices Act on a similar basis.
Fabsert had more luck with its argument that ABB was required to give reasonable notice before terminating the contract, with Magistrate Driver finding that a term should be implied into the contract for 12 weeks notice.
After considering several cases dealing with the implication of notice periods into contracts for services, he found that at least one month’s notice was required for the orderly handover of the warehouse management business to ABB’s new contractor.
Magistrate Driver also found the length of time Fabsert’s director would take to find new work was a factor in determining a reasonable notice period, although he made it clear that the cases on reasonable notice in employment contracts were not directly relevant.
He said Fabsert was “almost entirely dependent” on its contract with ABB, and that the employment options of its directors were limited given they were aged 44 and 58.
Twelve weeks notice was reasonably required under the contract in order for Fabsert “to wind down its operations, to hand over responsibility effectively to the new warehouse manager and to redeploy its labour,” he said.
Magistrate Driver found a 12 week notice period should be implied into the contract, ordering ABB to pay Fabsert the $36,000 it should have received in lieu of that notice plus interest calculated from the date of termination of the contract.
Fabsert Pty Ltd v ABB Warehousing (NSW) Pty Ltd [2008] FMCA 1198 (30 September 2008) 
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Source: Thomson Publications, Workplace Express Bulletin, 1 October 2008