Source: http://archive.hrnicholls.com.au/archives/vol15/vol15-6.php
Timestamp: 2019-04-25 03:01:44+00:00

Document:
I will discuss the area of industrial law which is concerned with what is generally called Unfair Employment Contracts. Most of you will be aware that the various Federal and State Industrial Relations Commissions have expansive powers relating to the supervision of the terms and conditions of work of award employees. What is perhaps not as widely recognised is the fact that the Industrial Relations legislation of Queensland and New South Wales and, since 1992, the Commonwealth, also confers a broad power to review and to vary the terms of individual contracts between employers and non-award employees.
sections 275 and 276 of the Industrial Relations Act (NSW) 1991 as amended (the NSW Act).
I propose to deal with this topic by reviewing the purpose of the legislation, by discussing specific provisions of the legislation, and by discussing the scope of the jurisdiction by reference to some recent decisions. For the most part I will concentrate on the Federal situation because, with some limitations, it applies Australia-wide. Where appropriate I will refer to State variations, and of course most of the reported decisions to date are by the State tribunals.
I am, however, mindful that the law of unfair contracts, interesting though it is in practice, may suffer from a certain lack of excitement when viewed in the abstract.
Therefore, I would like to set the scene by discussing a case recently determined in the Industrial Court of New South Wales. New South Wales has been the most fertile jurisdiction for cases of the type under consideration, and the New South Wales tribunal has shown the greatest willingness to push out the envelope as far as the "unfair contracts jurisdiction" is concerned. The New South Wales legislation is in broader terms than the Federal legislation in some respects, particularly in relation to the types of orders which can be made, but there is no reason in principle why other industrial tribunals cannot exercise similar powers.
The case is that of Ronald James Gibbs v. Gold Coast Tweed Giants Rugby League Football Club Limited & Ors, a decision of Her Honour Judge Schmidt of the Industrial Court. The decision was handed down on 17 December 1993. What I hope to do by taking you through this case in detail, is give you an understanding of how potentially broad the legislation can be. I should state that my analysis of the case is not a critique of the decision itself.
The facts of the case may prove interesting for those who are sport minded. Mr Gibbs was a professional rugby league footballer. He was a regular starter for New South Wales in the all-important State of Origin rugby league clashes between New South Wales and Queensland. Supporters of the Manly Football Club will have fond memories of Mr Gibbs' glory days as a hard-tackling utility forward with that club in the mid 1980s. His dispute with the Gold Coast Rugby League Club (now called the Gold Coast Seagulls) occurred during what one might label the later years of his career. It was in 1987 when he first entered into negotiations with the Gold Coast Football Club.
It was found as a fact in the proceedings that in conversations with various officials of the Club in mid 1987 (whom I will call the promoters), Mr Gibbs was offered a five acre block of land described as Lot 16 if he agreed to play for the Club. The Club itself was a separate legal identity, which held the relevant licence from the New South Wales Rugby League. One might have supposed the promoters were negotiating on the Club's behalf, but the finding was that it was the promoters, and not the Club, who made this promise. He then signed a contract with the Club which did not mention Lot 16 and made no provision for its transfer.
The 1988 season proceeded unhappily for the Gold Coast Club, and also apparently for Mr Gibbs. In discussions with the promoters during that year, Mr Gibbs was told that Lot 16 would not be transferred to him until the end of the season. At the end of the year he was told that it would not be transferred until his three year contract had been played out and that if he breached his contract in any way he would not get the land at all.
In April 1989 Lot 16 was sold by its owner who, it turned out, was unfortunately not a party to any of the arrangements between Mr Gibbs, the Club and the promoters.
Mr Gibbs was then offered and accepted a substituted block of land described as Lot 52 which was greatly inferior to Lot 16.
In January 1989 the Club sold the right to enter the Gold Coast team in the league competition to another consortium. The promoters, or some of them, conducted the negotiations on the Club's behalf. The new consortium agreed only to be responsible for the obligations set out in Mr Gibbs' written contract. The promoters and the Club accepted this. Mr Gibbs was not represented during these negotiations and his consent was not obtained. He did, however, play out the remainder of his contract, which expired in 1990, for the new consortium.
In 1992 Mr Gibbs commenced proceedings pursuant to the unfair contracts legislation against firstly, the Club, secondly, the promoters, and thirdly, the new consortium. He sought against each an order for the payment of $53,000.00 which was said to be the value of Lot 16, as well as orders varying the contracts and arrangements which he had with the various entities.
He submitted, and it was found to be a fact, that the promoters had offered him land in order to induce him to sign a contract with the Club. Mr Gibbs argued that if this was the case then either he had a written contract with no contractual right to the land or alternatively he had a written contract with an oral term providing for the transfer of the land. Mr Gibbs' argument was that on the first scenario the contract was unfair because what had been promised was not delivered. On the second scenario the contract was unfair because an oral contract for the transfer of land cannot be enforced. and he thereby lost the benefit of the promise. He also said that the contract became unfair when Lot 52 was substituted for Lot 16.
Mr Gibbs claimed that the contract or arrangement which arose between him and the new consortium was also unfair because, being aware of the entirety of the arrangement between Mr Gibbs and the Club and the promoters, the new consortium was prepared to take the benefit of Mr Gibbs' services but was not prepared to pay the proper price which was the money and the land.
The new consortium submitted that the claim related to matters in issue between Mr Gibbs and the Club and the promoters and did not concern them. They also submitted that the Court had no jurisdiction because it was really a claim for damages for breach by the promoters of a collateral contract.
(c)	what was described as a "collateral arrangement" between Mr Gibbs and the promoters relating to Lot 16 which was subsequently varied to Lot 52. It was also found that this arrangement was collateral to each of the other contracts including the contract with the new consortium.
It was held that the contract between Mr Gibbs and the Club was unfair because there was no provision in the written contract imposing an obligation to ensure that Mr Gibbs received all that he had bargained for, including the transfer of the land.
It was held that the arrangement between Mr Gibbs and the promoters was unfair because the arrangement enabled the promoters to vary the arrangement by substituting an inferior lot of land and because the arrangement between them was made in circumstances where the promoters required the acquiescence of a third party, being the owner of the block.
It was held finally that the contract between Mr Gibbs and the new consortium was also unfair because the new consortium had the benefit of Mr Gibbs playing for the Gold Coast for two years but had not accepted an obligation to ensure that Mr Gibbs obtained the land.
1.	An order that the written contracts and arrangements between Mr Gibbs and the Club and the new consortium be varied to require them each to ensure that Lot 16 was conveyed to Mr Gibbs prior to the determination of those contracts and arrangements and, failing such transfer, to ensure that Mr Gibbs be paid a sum equal to the value of Lot 16 prior to the termination of his contract with the new consortium at the end of the 1990 football season.
2.	The arrangement between Mr Gibbs and the promoters be reduced to writing and varied to require them to ensure that title to Lot 16 be conveyed to him prior to the termination of his contract or that he be paid the value of the land prior to the end of his contract.
3.	The Club and the promoters pay to Mr Gibbs one third of the value of Lot 16 ($53,000.00) plus interest from the date of termination of his contract with the new consortium to the date on which payment is made.
4.	The promoters and the new consortium pay to Mr Gibbs two thirds of the value of Lot 16 plus interest in a similar manner.
If one examines the respective positions of the three respondents, it can be seen that the application of the Legislation in these circumstances produced results which go well beyond what might have been the result if ordinary commercial legal principles were applied.
Firstly we need to look at the position of the promoters. They had made representations to Mr Gibbs to the effect that, if he entered into a contract to play football for the Club (a separate entity) he would receive a particular block of land. They were not his employer and did not stand in a position which could be described as analogous to that of an employer. Nevertheless, the legislation allowed enforcement of the arrangement against them as if they had personally contracted to provide the land themselves.
Turning to the position of the new consortium, they had negotiated and contracted for the purchase of the license and presumably for an assignment of the benefit of the written contract which the Club had with Mr Gibbs.
They expressly negotiated and contracted on the basis that they did not want to be responsible for whatever arrangements Mr Gibbs had with the promoters. Presumably their position was that to the extent that the promoters had a problem with Mr Gibbs that was to remain their problem. Nevertheless, and notwithstanding their commercial position, an order was made against them which held them responsible, in a broad sense, for what one might term Mr Gibbs' full employment entitlements.
As to the Club, the only contractual relationship it had with Mr Gibbs was held to be the written contract, which made no reference to the land transfer. The Club had not been involved in promising Mr Gibbs a block of land. The land was promised by the promoters. Nevertheless, the Club was held jointly responsible with the promoters to pay one-third of the value of the land, and the written contract was varied to include an obligation to ensure that title was transferred, or that Mr Gibbs was otherwise compensated.
Let me make a couple of comments about the implication of this decision.
1.	Mr Gibbs was not an "employee" in the sense that industry generally understands that word. Mr Gibbs was a man who had contracted his services in what might be thought of as a free and open market. He was a man of stature and superior skill within his field and undoubtedly was not without bargaining power in his market. Nevertheless, he was able, under the legislation, to ask the Industrial Court to review the entirety of his commercial arrangement with the Club and its associates.
2.	Second, the orders made included variations to Mr Gibbs' contracts and arrangements, including too the written contract which he had with the Club. Once ordered, these variations must stand for all purposes and not just for the purposes which might be described as Industrial. It is more than possible that the order may have ramifications for the relationship between the new consortium and the New South Wales Rugby League.
The tax positions of the parties may have been affected. Furthermore, the new consortium may well have an action against the Club on the basis that what they have finally ended up with in terms of their contract with Mr Gibbs was not what they bargained for when contracting to take over the organization.
3.	Third, and perhaps most fundamentally, none of the parties including Mr Gibbs ended up with that for which they had initially bargained. Mr Gibbs did substantially better. Mr Gibbs bargained for, and got, a written contract together with a promise expressly not in writing that he would or might also get a block of land. Later, he apparently agreed to a variation of that promise to substitute a different block of land. He did not bargain at all with the new consortium; his only relationship with them was derived from an assignment of his written contract with the Club.
In more obvious ways, it can be seen that the respondents did not receive that for which they thought they had bargained.
I hope that I have succeeded in demonstrating so far that once the jurisdiction is triggered, the scope to make orders varying commercial relationships is very broad.
People who are associated with contracts involving the provision of labour, but who do not consider themselves parties to the contract, may find themselves with positive contractual obligations.
I now return to a more structured discussion of the legislation.
Harsh critics of the legislation have dismissed the purpose of the 1992 insertion of these provisions into the Federal Industrial Relations Act as a knee-jerk response to the activities of the Trouble Shooters, who provide labour on a contract basis and thus avoid the application of awards to their activities and their client's activities.
This may be a little unfair, but certainly the purpose of the legislation is to regulate, through the legislation and its Commissions and Courts, contracts which fall outside the traditional employerÄemployee relationship but which deal with the performance of "work".
What is required in general terms is a contract of service. The Queensland Act and the Federal Act do not apply to employees in the traditional sense; there is a specific exclusion in the Queensland legislation and the Federal legislation is solely concerned with contracts for services with independent contractors. The New South Wales legislation is not so limited, but plainly it is intended to operate for the benefit of independent contractors and others rather than those who enjoy the protection of the award system.
Apart from this, a clue to the spirit of the new Federal jurisdiction can be found in a list of considerations provided by the legislation to guide the Commission in the exercise of the jurisdiction; in other words, when deciding whether to vary a contract or make some other order. The Commission is not obliged to have regard to these considerations. but is permitted to do so. The specified considerations draw on long-established legal doctrines for relieving parties from unfair or unjust contracts at general law, but also include concepts peculiar to the industrial arena.
(e)	any other matter that it thinks relevant.
That case is TWU v. Wagner, referred to as the TWU case.
Clearly there is scope for contracts with independent contractors to be brought into line with Federal Award conditions.
It must be remembered that at common law there was considerable reluctance by the Courts to interfere with employment contracts otherwise than by refusing to enforce contracts of servitude or taking action in limited categories of cases, for example, cases involving duress or fraud. Statute has altered that position.
The use of the term "employee" in paragraph (d) is referring to employee in the strict legal sense � an individual performing work under a contract of service as opposed to an independent contractor performing work under a contract for services. It compels a comparison with ordinary employees.
In the consideration above (a) and (b) may be considered procedural dealing with bargaining positions and unfair tactics whereas (c) and (d) are substantive and industrial in their nature � dealing with adverse effect on skills and total remuneration.
The matters to which the Commission may have regard also suggest that the Commission is to look at the industry generally and to consider whether the independent contractors will be paid less than their counterparts in the award system. There is an invitation to treat this as a matter which should be rectified pursuant to the legislation. The Commission may also have regard to the effect on development of skills: one of the complaints of the union movement about the Trouble Shooters system is that it tends to reduce the incentive an employer might otherwise have to train his staff. This is because he simply contracts for the services of skilled labour as and when required, and has a lesser need to nurture the skills of his workforce.
Finally when discussing the purpose of this legislation in the way in which it is intended to operate, one should note that the legislation operates only in relation to specific contracts which are brought to the attention of the Court. It does not mirror the award system by mandating minimum conditions in a general sense or by prohibiting other types of conditions. In other words, a contract of employment stands until an order is made.
This means that someone has to bring an action before the Industrial Court. Either party to the contract of service may do so. The unions also have standing under the Act but only if the independent contractor is a member of the union or has applied for membership. Employer groups have a similar standing.
The possibilities for collective action are therefore reduced. It remains a mechanism which is likely to be used only by disgruntled independent contractors, and historically this class has shown no great affection for either the Federal Act or the centralised wage fixing system.
I have spoken of a limitation on the scope of the Federal Act stemming from the limited constitutional powers of the Commonwealth Parliament to make law.
In broad terms, the legislation applies to contracts entered into or relating to the business of a corporation, relating to interstate trade or commerce, affecting matters that take place in or are connected with a Commonwealth Territory or to which the Commonwealth or a Commonwealth Authority is a party.
If you therefore reach an arrangement with your daughter pursuant to which she agrees to mow your lawn once a month for the next ten years and you agree to pay her $5.00 an hour to do so, then you have nothing to fear from the Federal Act unless your lawn is owned by a company or exists partly in one State and partly in another State. Such an arrangement might also be thought to be one of a private or domestic nature, which is also excluded from the operation of the Act.
At the time of writing the legislation has been challenged in the High Court as one which goes beyond the power of the Commonwealth, but no decision has been delivered. I do not venture an opinion as to whether such a challenge would succeed.
2.	What types of Contract?
(b)	Any condition or collateral arrangement relating to such a contract.
The definition neatly catches the Trouble Shooters style of arrangement. It is also likely to catch a variety of other arrangements depending how broadly the word "services" and the phrase "Collateral Arrangement" are interpreted in this context. It is not likely to catch the variety of commercial arrangements, some far removed from the employment context, which have been held to be within the purview of the New South Wales Act.
3.	Review on What Basis?
(c)	The contract is against the public interest.
We have already looked at the types of matters which the Court may take into account in reaching this decision.
4.	What Can the Commission Do?
If one of the grounds stated is made out in an application then the Commission's powers are as provided for in section 127B.
The Commission may set aside the whole of the contract (or the part of the contract affected), or vary the contract. The Commission must record whether its decision relates to the whole or a specified part of the contract (sub-section 127A(5)).
Significantly, the Commission has no power to order monetary compensation. In an early version of the amending bill a provision was proposed which empowered the Commission to make "any other orders in respect of the contractual relationship between the parties to the contract," including, one assumes, the power to make money orders, but that provision never passed into law.
The Queensland and New South Wales legislation have such powers, and Mr Gibbs' case provides an example of their use.
There are two further points to make to complete this overview of the new Federal provisions.
First, an order of the Commission (setting aside or varying the contract) may only be made for the purpose of placing the parties to the contract as nearly as practicable on the footing they would have been on if the ground on which the Commission's opinion that the contract should be reviewed no longer applied. The exact effect of this interestingly worded rider to the Commission's power will no doubt be explored early in the case law that develops around these provisions. Presumably it means that if, for example, the finding is that the contract breaches the public interest, the Commission will have to decide what is the minimum variation which can be made which will address this problem.
Second, one must wonder whether the Federal Commission will see its powers as being as extensive as the New South Wales Commission and Court have considered their powers to be. In this regard, the issue of the meaning of the phrase "relating to the business of a corporation" was discussed in the TWU case.
...given their ordinary meaning, may demand no more than that a 'relevant nexus' exists between the contract and the business of a corporation. However given the constitutional limits on the use of corporations power to impose duties on non-corporate persons, in the absence of a suggestion that any other head of power justifies s 127C(l)(b), it is necessary to construe the paragraph in a manner consistent with its validity.
That obligation leads me to conclude that the words should be construed to require a higher and less elastic degree of relevant nexus or basic connection between the contract and the business of a corporation than might be the case if the ordinary meaning of the words alone were to be considered.
The word "arrangement" has been given an expansive meaning in other contexts.
First, it is worth mentioning that, while an application is pending, the Commission may make an interim order if it thinks it is desirable to do so to preserve the position of a party to the contract. In view of the length of time involved in any hearing, this in itself is a significant power.
in Re: Grevsmuhl and Gorski8 an arrangement between a dental technician and a part-time worker essentially for the making of deliveries was not interfered with primarily because the technician's evidence as to the nature of the arrangements was preferred over that of the applicant.
In Swann and Trazdo Pty Ltd v. Ultra Tune Australia Pty Ltd and Smart,9 it was noted that the provision is not designed to "provide a form of rescue to entrepreneurs who may wittingly or advisedly enter into business arrangements which ... turn out to be unprofitable ...".
However, the enormous breadth of the Court's power is well settled.
In Australian Business Centres v. Smith it was held, under the former section 88F of the New South Wales legislation, that the jurisdiction extended to contracts for the sale of a business where the purchaser under the contract subsequently worked in the business.
It seemed for a while that a significant decision in 1991 had begun to pull the New South Wales Act back from such a wide operation.
In Production Spray Painting and Panel Beating Pty Ltd v Newham & Ors12 the New South Wales Court of Appeal held that a contract for the sale of a retail business where the purchaser works in the business after purchase was not a contract whereby that person "performs work in an industry" within the meaning of the old New South Wales provision. The Commission noted that the vendors retained no interest in the business after completion. The contract for sale was not a franchise agreement.
Accordingly, the Commission concluded that Section 88F had no application and noted that "it is clear that many more contracts will be within the section if it is enough that work is done in an industry in consequence of the making of the contract".
The Production Spray Painting case was distinguished in Tilburg & Anor v. Nagle13 by Marks J.
In that case an oral contract for the purchase of a truck and the goodwill of a delivery run was held to be under S275 because the vendor would maintain a visible profile for customer relations and perform a back-up delivery role. In that way there was a contract of performance of work which continued after the completion of the purchase.
The broad view re-emerged in the 1993 case D N Stock v. Associated Lithographers Pty Limited & Ors14. This case is probably the high water mark of the expansive view.
In this case, it appears an employee, Mr Stock, was advised by his employer that his superannuation arrangements would result in a payout at retirement of approximately $200,000.00. Mr Stock took advice from the manager of the superannuation fund, Legal & General, and was told that everything was in order. This occurred in 1979. In August or September 1980, Mr Stock received a further assurance from Legal and General that the new superannuation arrangements were in fact in place.
In 1990, when Mr Stock was approaching retirement, Legal & General provided a summary of the benefits. The estimated cash value on retirement was substantially less than $200,000.00.
There seems to have been a finding that the arrangement between Legal & General and the employer obliged Legal & General to advise the employer in relation to the level of premiums required to achieve the desired outcome of a retirement benefit of $200,000.00 at age 65.
In turn, Mr Stock relied upon his employer to implement that advice. It was held that the agreement to pay superannuation was an arrangement collateral to the contract of employment, and one able to be examined pursuant to Section 275 of the New South Wales legislation.
In making an order under this Section, the Industrial Court may make such order as to the payment of money in connection with any contract, arrangement, condition or collateral arrangement declared wholly or partly void, or varied, as the Industrial Court considers just in the circumstances of the case.
It is central to the determination of the case that this section permits orders in relation to people who are not parties to the contracts or arrangements which have been varied. There was no finding that the superannuation schemes constitute collateral arrangements themselves.
Whether such a finding was open, even under the New South Wales legislation, is a subject for conjecture. Certainly it would not be open under the Federal legislation or the Queensland legislation.
In another decision of the Full Industrial Court in New South Wales, the Court has found that an employment contract which did not include a redundancy benefit was unfair and ought to be varied to include a redundancy provision. Money orders followed that finding. The letter of appointment which originally constituted the contract provided expressly for termination of employment on one month's notice in writing.
This might have been an accurate comment in a jurisdiction in which the court system or for that matter industrial tribunals were experiencing inordinate delay in processing disputes. I am not sure that it is a valid comment in any other context.
The real question for the future, however, is whether the Federal Industrial Court will resist the temptation which the Queensland Industrial Relations Commission has resisted, namely to adopt the same expansive view of its power to review employment contracts as the New South Wales Commission and subsequently the Industrial Court have adopted.
However the decisions evolve, one thing is crystal clear, and I will leave you with this final comment.
Constitutional questions aside, every contract for services from that of a professional footballer to that of the managing director of BHP can now be scrutinized by the Industrial Court and, where that Court thinks it appropriate, varied. It is likely that the concepts of fairness adopted by the Court from time to time will vary markedly from those of the employer who has drawn the contract.
1.	In Brown v Rezitis (1970) 127 C.L.R. 157 at 164.
2.	Print K8216 30/6/93 at 59.
3.	Print K8216 30/6/93 at 61.
4.	Print K8216 30/6/93 at 20-23.
5.	Smithers J, in Top Performance Motors Pty Ltd v Ira Berk (1975) 24 FLR L86(a) 290 adopting Newton v Federal Commission of Taxation (1958) 98 C.L.R. 1 at 7.
6.	Miller, Annotated Trade Practices Act, (13th ed., 1992) para 615.40.
10.	Fernance and Wreckair: 1993 35 AILR 108.
15.	Macken JJ., McGarry G, and Sappideen C., The Laws of Employment The Law Book Company Limited. 3rd edition at page 480.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v.