Independent contractors: back to the bad old days

The Independent Contractors Act 2006 (ICA) was implemented to simplify the law surrounding “employee like” incorporated independent contractors (IC) and protect the IC’s from unfair, unconscionable or unjust bargaining or circumstances where an IC is paid less than a comparable employee.

It was also developed to exclude several state Acts that permitted retrospective variations of contracts for IC’s giving rise to unpredictable damages claims. Sadly, as courts seek to balance justice for IC’s with a restrictive ICA, the good intentions of our legislators have been thwarted. The recent case of Keldote v Riteway should cause alarm for all businesses.

The critical facts, findings and effect of the decision were as follows:

1. Several truck driver incorporated IC’s had a contract with Riteway;
2. The contract permitted Riteway to require the IC’s to change their rig at the IC’s cost;
3. Riteway directed the IC’s to change their rigs, the IC’s refused and were terminated;
4. The IC’s commenced action to prevent the termination of their engagement with Riteway and subsequently sought the contracts to be varied to remove the requirement of “change” and to seek damages;
5. The contracts were, in effect, unfair and did disadvantage the IC’s;
6. The Federal Magistrate, FM Cameron, retrospectively varied the contract, removed the change clause and awarded damages.

The decision in the Riteway case appears at odds with the purposes behind the implementation of the ICA. It is unlikely to stand as an authority for long. But while it remains persuasive authority, businesses may consider the following steps prudent.

1. Pre-engagement – create a spreadsheet with each clause in it and ensure that both you and the IC initial that you both have read each clause and understand its effect.
2. At pre-engagement stage, issue the IC with a letter advising them, pursuant to the contract (which should have a clause to this effect), that they should get independent legal and accounting advice.
3. The contract must have a rolled-up rate that explicitly states it is in consideration of all IC responsibilities including, but not limited to, change obligations. It must be clear the rate amortises reasonable upgrade costs and the rate must actually remunerate the IC for this!
4. Undertake your own (defensible) calculations that demonstrate the rate once the cost amortisation and usual business costs have been rolled in, is better than the rate for a comparable employee.

Remember the purpose of IC’s is to have remuneration based on productivity and flexibility not mere hourly attendance. If you lose sight of the purpose – you will lose the benefit.

Andrew Douglas is the Managing Director of Douglas LPT, an integrated legal, HR, recruiting and training business. He is the Editor-in-Chief of the loose leaf publication, The OHS Handbook, and writes on workplace law issues such as Industrial Relations, Employment law, OHS, Equal Opportunity, Privacy, Surveillance and Workers Compensation. He is the principal of the legal division of Douglas LPT and appears in courts, tribunals and Commissions throughout Australia.