New Cases 2015-2016
Australia: Contractor Time is of the essence
We refer you to CMA Assets Pty Ltd v Jon Holland (No 6), where CMA was prevented from claiming an extension of time (EOT) because its notices
of possible delay required under its construction contract with John Holland (“JH”) were issued out of time. Despite finding that JH was responsible
for various delays, the court ultimately found that JH was entitled to reject CMA’s EOT claim because it had failed to comply with the clear terms
of the subcontract.
For contractors who have taken a ‘step up’ and entered into a major contract for the first time it is essential that they take legal advice.
Australia: Director and HR Manager pay the price for Fair Work Act breaches
Recently, as a director and HR Manager learned, the consequences of cutting corners do not just fall just on the company.
Oz Staff Career Services, which supplies cleaners to other businesses, had the common practice of deducting an “administration fee” and meal allowance
from its staff. However under the Fair Work Act any deduction must be both authorised by, and for the benefit of, the employee.
Further, when the Fair Work Ombudsman (FWO) became aware of these deductions asking for pay records as part of its investigation, Oz Staff supplied data
that didn’t record the deductions. As the Fair Work Act requires all employers to keep employee records, that are not false or misleading, the
Government workplace watchdog took a dim view of attempts to deceive them.
There was no doubt that Oz Staff had breached the Fair Work Act but the FWO also prosecuted its director and HR manager.
Under the Fair Work Act, individuals that contravene the legislation can suffer personal fines. The Oz Staff execs contended that the FWO did not
prove that they had actual knowledge of the contraventions and therefore, they weren’t “involved”. The Court gave that argument short shrift.
The HR Manager was meant to be across the employment affairs of Oz Staff, including wage deductions and employment records. As for the director,
he was Oz Staff’s only director, its CEO actively managed the business. It was held beyond doubt that the two were knowingly involved in the
contraventions. An important lesson for those who think willful blindness will be their saviour.
The director and HR Manager will find out later this year how much the fines will be but are facing personal fines of up to $10,800 per breach.
We would also refer you to Cerin v ACI Operations Pty Ltd which also deals with personal fines for HR Managers.
Commercial Leases: The Risk with informal dealings
It is quite possible to be locked into a commercial lease without even signing the papers.
Consider the case of commercial property owner, Priolo Corporation Pty Ltd which leased a property to Vantage Systems Pty Ltd, including six car
parking spaces on the property.
With the original lease due to expire, discussions began about a new lease. Priolo emailed a proposal to Vantage and later revised the proposal
for Vantage to consider.
The revised proposal covered the usual lease details but mistakenly set the car parking licence fee at $375 per car space per annum, instead of
$375 per month for each space. Vantage having noticed the mistake chose not to draw attention to it.
The dispute was whether or not the two companies were bound under this revised proposal.
The Court of Appeal held that Priolo and Vantage had intended to be bound as soon as they had agreed on the terms of the revised proposal.
The take out from this is that dealings and negotiations around commercial leasing have the potential to bind you. If the requirements of
a valid contract are satisfied then the parties will be bound – even if formal documents have not been prepared or signed.
The take out is to be very careful when emailing proposals and informally agreeing to terms.
New Information Sheet on unfair contract terms to Small Business
New laws amend the Australian Consumer Law (ACL) and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act)
and will come into effect from 12 November 2016.
ASIC recently published an information sheet providing guidance on these new laws that extend unfair contract term protections to small businesses
entering into standard form cotnracts.
A term in a standard form contract will be unfair if it:
- Causes a significant imbalance in the parties’ rights and obligations under the contract;
- Would cause detriment (whether financial or otherwise) to a party if it were relied on; and
- Is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term.
The ASIC Information Sheet provides guidance on how the new laws will impact businesses and outlines ASIC’s expectations that businesses will
review their standard form contracts prior to 12 November 2016.
What should you do to ensure compliance with the new laws?
Review
ASIC recommends that businesses commence a comprehensive review of their standard form contracts, particularly those contracting with small
businesses of less than 20 employees to identify terms that would potentially beach the new laws.
This review should include new contracts and also existing contracts which businesses intend to vary or renew as these will fall within the
ambit of the new protections.
The Information Sheet contains specific examples of contract terms that may be considered unfair and under the new laws, including terms providing
for an automatic rollover of a contract or the right to unilaterally vary a contract may be unfair under the new laws. Businesses
should consider these terms and whether they are required in every instance.
The Information Sheet is available at www.asic.gov.au.
Transparency
According to ASIC, a term is considered to be “transparent” if it is legible, expressed in plain language, is presented clearly and is readily
available to any party affected by the term.
Businesses should ensure that all contact terms are transparent. In addition, businesses should consider bringing potentially unfair
terms in standard form contracts to the attention of the other side. While ASIC has identified that transparency may not prevent
such terms from being considered unfair, if a business has provided the other party with a notice or other information about any onerous
terms, there is less scope for finding those terms to be unfair as the other part may be treated as having assumed any risks associated
with the term.
Enquiry
There is no requirement under the new laws to notify the other side that your business is likely to be considered a “small business” and fall
within the protections of the new laws.
Sham Contracting….
Lawyers are sometimes informed “It’s okay, he/she has an ABN”.
Employers often assume the ABN absolves then all employment obligations. Recent cases in relation to sham contacting and other claims
by employees make it clear this is not the case. It is actually difficult to establish a legitimate contracting relationship between
a business.
To ensure your employee is a contractor, you should closely consider the following:
- The worker employs other staff; or
- Your worker is essentially providing equipment or facilities to you (of a substantial nature) and the labour is only incidental to that.
The worker is likely to be a contractor if the worker:
- Gives quotations for work to be done;
- Charges the unit (not hourly) rate;
- Has an extensive client base, then they are likely to be a contractor;
- Has a registered business name;
- Advertises on social media or elsewhere under their own individual signage and branding;
- Contributes significant equipment (i.e. tailor-fitted vehicle); and
- Puts a mark-up on materials.
Be aware, if these factors are absent you have a significant exposure.
In 2013 a national insurance company was forced to back pay $500,000 in annual leave to agents who had been engaged by them for nearly twenty
years. A relatively small bus company was fined almost $250,000 in relation to what was regarded as sham contracting with then responsible
director being fined $48,000.
Even if you have paid contractors above award rates, the Court may still hold that annual leave and long service leave has been accruing and
that you are liable to pay.
Of course other statutory liabilities may arise including superannuation, payroll tax or workers compensation. Each piece of relevant
legislation has a different test of what it classifies as a ‘worker’.
If you believe you have an exposure seek legal advice as your accountant may not be across all the issues.
Office Parties – Obligations of Employers
Quite often these are not confined to Christmas end of year functions and the legal obligations of employers continue to apply during work
parties and functions. Employers must follow their duty of care to their employees and must take reasonable steps to reduce potential
risk to their health and safety. This includes protecting staff from the heightened risk of sexual harassment, bullying, discrimination
and safety breaches that often follows alcohol consumption.
Employers may find themselves vicariously liable for employees’ misconduct unless they can demonstrate all reasonable steps to prevent the
conduct from occurring. The case law clearly shows this extends to work Christmas parties and other work-related functions.
Lessons learnt from the courts
We refer you to recent cases:
- Ewin v Vergara (No 3) – an example of where an employer was found to be vicariously liable for sexual harassment.
- Keen v Leighton Boral Amey Joint Venture – the Fair Work Commission held that dismissing an employee for drunken and inappropriate
conduct at a work Christmas party where the supply of alcohol was unlimited and unmonitored was unfair.
Sparke Helmore Lawyers recommend the following steps to be taken:
- Before your function, remind your employees that it is a work event and that appropriate standards of behaviour, as set out in your
workplace policies are expected. - Identify any potential hazards by performing a risk assessment of the party venue.
- Warn employees about the potential consequences of inappropriate behaviour.
- Set a start and finish time for the function and make it clear that events/activities that occur outside of this time frame are not
endorsed by the employer. - Ensure a senior employee is assigned to stay sober and monitor behaviour and alcohol consumption. This role may require taking
action to address escalating behaviour, such as sending someone home or closing the bar. - Comply with responsible service of alcohol requirements and provide sufficient food and non-alcoholic drinks at the event. If
an employee is visibly intoxicated then cut off their alcohol supply. - Ensure you have up-to-date policies and procedures on bullying and harassment, discrimination, social media, work health and safety
and drug and alcohol use. You should also have policies that set out your complaints process so that any incidents can be
swiftly and appropriately addressed. - Communicate your policies and procedures to your employees and ensure appropriate training is provided.
- Immediately deal with all complaints in a professional and confidential manner.
- Review your applicable insurance policy to assess whether the proposed Christmas function is covered.
Australia: Australia moves to Implement a Director ‘Safe-Harbour’ Defence
In December 2015 Australian government announced a ‘National Innovation and Science Agenda’ to be introduced by the middle of 2017, which
includes providing a defence to protect directors from liability for insolvent trading where restructuring advice is obtained in an
attempt to turn around a company’s financial position. The government also released the Productivity Commission Report on ‘Business
Set-up, Transfer and Closure’ containing recommendations on how the defence should operate.
The lack of a ‘safe harbour’ defence in Australia’s insolvency laws has long been criticised. Directors have potential exposure to
personal liability for insolvent trading and can be prone to call in administrators or liquidators when a company first experiences
financial trouble. This sometimes ignores strategies available to improve the performance of the organisation and achieve a successful
restructure.
The Government’s proposed ‘safe harbour’ defence will be incorporated into the Corporations Act 2001 (Cth) and will permit directors of
solvent but struggling companies to seek advice and provide for a reasonable period of time to restructure without directors being
exposed to liability for insolvent trading.
The Productivity Commission Report recommends that the ‘safe harbour’ defence be available where:
- Directors of a company have made, and documented, a conscious decision to appoint a safe harbor adviser with a view to constructing
a plan to turnaround the company; - The adviser was presented with proper books and records upon appointment and can certify that the Company was solvent at the time of
appointment; - The adviser is registered and has at least 5 years’ experience as an insolvency and turnaround practitioner and directors are able
to demonstrate that they took all reasonable steps to pursue restricting; and - Restructuring advice must be proximate to a specific circumstance of financial difficulty, and subject to general anti avoidance provisions
to prevent repeated use of the safe harbor defence within a short period.
The defence does not relate to any particular decision and instead covers the running of the business and any restructure activity from
the time of appointment until the conclusion of implementation of the advice including reasonable timeframe.
If the adviser is of the opinion that the business cannot be successfully restructured, the safe harbour period terminates and formal insolvency
processes will commence.
The Productivity Commission is concerned that the ‘safe harbour’ defence should not be used by directors to carry out phoenix activities
that siphon assets out of the business and into a new company. To limit this risk the Commission has recommended the introduction
of a director identified number, underpinned by an identification process along the lines required to establish a bank account, to
monitor director registration.
A proposal paper for the ‘safe harbour’ defence will be realised in the first half of 2016 for public comment.