October 2004

Redefining the boundaries of unfair contract claims in NSW

Section 106 of the NSW Industrial Relations Act 1996, allows the NSW Industrial Relations Commission to rewrite unfair contracts that lead to the performance of work in an industry. If the contract is unfair the Commission can make an award of monetary compensation.

Cases in the unfair contract area are important because of the apparent march of unfair contract claims into the realm of commercial transactions and arrangements.

Recent decisions of the NSW Court of Appeal have again defined the boundaries of unfair contracts claims. But beware the fence is still moving.

The cases arise in the context of there being no automatic right of appeal from the Industrial Relations Commission to the Court of Appeal, indeed there is a statutory bar on appeals against IRC decisions (section 179 of the Industrial Relations Act).

While section 179 of the Industrial Relations Act would appear to preclude a review by the NSW Court of Appeal of any decision or purported decision of the NSW Commission, all three Court of Appeal judgments concern matters where the Commission had not yet made a decision.

Importantly the Court of Appeal determined it had the jurisdiction to intervene if a decision had not yet been made by the IRC.

Case 1: No jurisdiction for commercial arrangements

Solution 6 Holdings Limited v Industrial Relations Commission of NSW

Solution 6 Holdings Limited purchased the entire shareholding of a company called FishTech. A condition precedent to the sale was that Mr Fish enter into an employment contract with Solution 6.

Mr Fish later commenced unfair contract proceedings seeking relief from the Share Sale Agreement and his employment contract. Mr Fish, amongst other things, sought to vary the share price formula in the Share Sale Agreement.

Solution 6 brought an application to the NSW Court of Appeal seeking an order restraining the Commission from dealing with the Share Sale Agreement.

The Court of Appeal held that a contract is only reviewable by the Commission if the contract leads directly to the person working in an industry. Where a contract directly envisages the performance of work and has a recognisable impact on the conditions of that work then the Court will readily conclude the contract has a direct connection to the performance of work.

The Court of Appeal was of the view that the Share Sale Agreement was simply a contract for the purchase and sale of a business. It did not have a direct impact of the terms and conditions of the performance of work. Accordingly, the Court of Appeal said the NSW IRC had no power to hear the claim.

Case 2: Can an agreement under overseas law be reviewed by the IRC?

Old UGC Inc & Ors v Industrial Relations Commission

Mr Rann was Managing Director of an Australian company. In 1997 his employment with the Australian company was terminated and he was transferred to a Netherlands affiliate. A Compensation and Release Agreement was signed which said that the law of Colorado governed the agreement contract.

The proceedings commenced by Mr Rann concerned certain aspects of the agreement which he considered to be unfair. Old UGC Inc sought an order that the NSW Commission did not have jurisdiction to hear the claim because the laws of Colorado governed the agreement.

The Court of Appeal held that the Commission has jurisdiction if the industry in which the relevant work is performed is in and of NSW. The law of the contract was less important that the connection of the work performed by Mr Rann to NSW. While the agreement did not alone lead directly to the performance of work, it did operate as a variation to Mr Rann's pre-existing contract of employment. As such, the Commission had jurisdiction to entertain the claim.

Case 3: Does a director "work" in an industry?

QSR Limited v Industrial Relations Commission

Mr Batterham promoted a scheme by which QSR Limited acquired a substantial number of restaurants and was floated as a company. Mr Batterham incurred expenses in doing so. Mr Batterham then became a director of QSR. Under an Option Deed, Mr Batterham had an entitlement to exercise one million options after three years if certain performance benchmarks were achieved.

The performance benchmarks were not achieved but, had an aggregate benchmark applied, it would have been met. Mr Batterham commenced proceedings alleging an unfair contract and challenged the Option Deed.

The parties before the Court of Appeal accepted that the Option Deed was not of itself a contract whereby a person performed work in an industry. It was submitted that it formed part of the consideration for the performance of work and therefore part of an arrangement that led to the performance of work.

The Court of Appeal refused to intervene in this matter, deciding that it was a matter where the Commission could determine its jurisdiction.

The Court of Appeal did however call into question whether in a general sense a director could be said to "work in an industry". Not deciding that point, the Court of Appeal merely observed that a contract that directly leads to the performance of work usually requires some element of subordination by the person performing the work. A director might not satisfy that test but that issue was for the NSW IRC to determine.

Conclusion

The cases illustrate that a contract or arrangement must directly lead to the performance of work to be within the jurisdiction of the Commission. The importance of the intervention of the Court of Appeal is that parties before the Commission now have the chance to challenge the jurisdiction of the Commission to hear the claim. Accordingly, it can be expected that there will be fewer commercial type claims coming before the Commission.

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