Employment Law, Contract Law - Is a person who has a services company entitled to relief under s 106 of the Industrial Relations Act (NSW)?

Date: September 26, 2005

Authors: LAC Lawyers

Section 106: An overview

Early forms of unfair contracts provisions were aimed at simply protecting the arbitration system. Contracts had to have a distinctive industrial ‘flavour’ before the courts or commissions would intervene.  Over time a more expansive and liberal approach attitude towards the review of unfair contracts developed. Such a broad response acted as a springboard for the Industrial Relations Commission of NSW to intervene in a wider variety of commercial transactions.

Strictly speaking, the scope of s 106 is to be restricted to contracts that lead directly to performance of work in an “industry.” However the term “industry” may be broadly interpreted. It appears though that the “industry” component is satisfied by doing the work in an industry.

The section is designed to protect citizens from unfair consequences of employment contracts. However more recently there has been a growing willingness to indirectly allow the jurisdiction to operate as an alternative to actions for a breach of contract.

The question of whether a person who has a services company is entitled to make a claim under s 106 depends greatly upon the width that the Commission is prepared to afford the section.

Who can apply?

Section 108 of the Act contains a list of persons that may apply for relief under s 106. Generally speaking, any person who is party to a contract can apply under s 106. This includes anybody whose status is a:

  • Natural person or company
  • An employer
  • An employee
  • Contractor
  • Licensee
  • Trade union official
  • Employer organisations

The general rule that a person must be party to a contract is subject to exceptions. For example, s 108 allows that a union or employer organisation that is not party to a contract arrangement could be an applicant without express requirement for consent by the relevant parties. This is an important operation of the Industrial Relations Act. It gives effect to one of the key policy considerations, that is, broader public interest and industrial concerns. However, an association that employs contractors, drivers and carriers who are registered under Chapter 6 of the Act can apply for relief under s 106 only in the event that a party to the contract is a member of that association.

Width of jurisdiction under s 106

Historical analysis of relevant decisions demonstrates that the jurisdiction of the Commission regarding unfair contracts is sufficiently wide to include agreements between sub-contractors, contractors and principals.  The interpretation and application of s 106 has become increasingly liberal and flexible.

The decision of the High Court in Stevenson v Barham confirmed that the Commission’s unfair contract jurisdiction is not limited to agreements that subvert industrial relations or contracts of employment.

There is potential for sub-contracting arrangements to be implemented under the pretext of “flexibility” but which in actual fact are intended to disadvantage workers by avoiding obligations that would exist if the relationship were one of employment. 

Furthermore, s 106 has been invoked in many other areas and is now regularly used in relation to franchise agreements, partnerships, commercial leases, share farming agreements and copyright agreements. There have also been numerous claims from independent contractors that have provided those workers with some protection in circumstances where they have been excluded from the protection of awards with some protection in circumstances where they have been excluded from the protection of awards and many statutory entitlements that applied to employees.

In the case of the AOS Group Australia Pty Ltd (In Liq) v Arrongate & Ors, the Full Bench of the Commission built upon the notion that the jurisdiction under s 106 enables the Commission to order that damages be paid by parties who were associated with the unfair contract - even if they were not part of the contract.

The result in the case lead to the inevitable conclusion that s 106 empowers new contracts to be created. This decision has great ramifications for not only liquidators and administrators but also participants on labour hire and other forms of indirect labour arrangements.

More recently allegations have been levelled at some applications that appear to be bringing claims under s 106 that are in actual fact more akin to unfair dismissal claims – found in Division 3, Part VIA of the Industrial Relations Act.

Unfair dismissal claims are designed to address a distinctly different circumstance and type of claim. Considerable claim must be taken in relation to the facts and pleadings if matters are to be brought under the jurisdiction of s 106. This is also the case if a person who has a services company seeks to bring an action. This is particularly important as the Commission will only determine jurisdiction at the end of the trial.

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