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The case of "Tom" versus Department of Education, Employment and Workplace Relations

November 2009

Update: 25 September

Tom has now been told that if he pursues the matter, he will fail. The story is that the federal government will not be held liable for the actions or undertakings of its employees. The government will spend endless amounts of money on lawyers denying its liability. Yet if Tom's situation happened in the private sector, his case would be strong, as private sector employers are held accountable for their employees' commitments. We thought the Magna Carta had fixed this sort of thing a long time ago!

Originally posted: 17 September

In July 2009 we announced the first phase of our Integrity of Contract campaign.

Basically, integrity of contract means that when an independent contractor (a self-employed person) enters a commercial contract, he or she can have certainty that the contract and the behaviours accompanying the contract conform to the common law principles of contract. This is the best way of ensuring 'fairness' under contract. We are preparing concept papers on the issue.

In early September, however, we were contacted by an ICA member who is unhappy with the treatment he has received from a federal government department under a commercial contract. We have looked closely at the case and, given the information we have seen, the member's problem appears to be a perfect example of breach of contract integrity on behalf of the department.

In fact the case is typical of the sort of behaviour that far too frequently occurs when self-employed people are engaged in work with government agencies. In what follows, we describe the case, our views of the basic issues at law, how this relates to 'fairness' and what lessons need to be learned.

Our independent contractor member has been open with the information. Of course, there may be other facts from the department's perspective of which we are not aware and which could change our understanding of the issues.

We shall call our member "Tom" (not his real name).

"Tom" v Department of Education, Employment and Workplace Relations (DEEWR)

The facts as we understand them:
  • Tom is a high-end information technology specialist. He is, and wants to be, a self-employed independent contractor. He sees independent contracting as central to his professionalism.
  • In July a recruitment agency approached him for work under a 9-month contract with DEEWR. He had not dealt with the recruitment agency before.
  • Tom attended an interview at DEEWR. After that interview, DEEWR requested that he return as they had a "more important" position that they wished to discuss. At the second interview they informed him that due to his highly specialized skills they would prefer to offer him a different and more specialized contract for 3 months' work with a 3-month extension.
  • Tom said that he was interested, subject to the contract details being finalized. DEEWR indicated that they wanted him to start almost immediately.
  • After a few days delay, the contract had not been forwarded to Tom. However DEEWR wanted the work to start as there was some apparent urgency to it. Tom began the work on the understanding that a contract would be forthcoming shortly.
  • Payments to Tom were managed through the recruitment agency. That is, Tom invoiced the recruitment agency, who invoiced DEEWR. DEEWR paid the recruitment agency, who paid Tom.
  • Over the following 6 weeks Tom continued to work but frequently raised concerns about the lack of a written contract with the agency. Tom is a well-organized person, has his own standard contract that he uses with clients which had been prepared for him by a lawyer. Because the recruitment agent had failed to provide him with a contract, Tom supplied his own standard contract before starting the work and, soon after starting, he followed this up with letters. He notified the agency that these were the conditions under which he was prepared to undertake the work. The recruitment agency never responded to Tom about his contract or an alternative contract.
  • After 6 weeks of work, the recruitment agency informed Tom that DEEWR was cancelling the work. No explanation was given by the recruitment agency. Tom has had discussions with the supervisors at DEEWR and subsequently more senior DEEWR executives. No complaints or concerns have been raised about the quality of his work. Indeed, the indications are that his work has been of a high standard. The best assessment of why DEEWR were cancelling the work is that there was a change of management priorities in DEEWR in relation to the work.
The position of the three parties:
  • Tom's view is that, at minimum, he was engaged for 3 months and took the work on that understanding. He believes the contract with him has been breached and that DEEWR has a contractual obligation to pay him for the balance of the contract plus the promised extension.
  • DEEWR has stated that its view is that they had a contract with the recruitment agency which could be terminated at any time.
  • The recruitment agency maintains that it had a contract with Tom which enabled them to terminate Tom's contract if DEEWR terminated the contract with them (the agency).
  • Tom states that neither the agency nor DEEWR provided him with a contract.
Our view of the issues at law
Given these facts, and based on the documents we have sighted, we believe that there is most probably a clear contract between Tom and DEEWR for at least 3 months' work, possibly 6 months' work. Naturally, it is for a court to decide, but our reasoning is based on our observations of the general approach courts normally take to such matters. We reason as follows:
  • A contract does not have to be something that is written. A contract is created by the actions, intent and behaviours of the parties to it. For the most part, written contracts act as clarifications of actual behaviours. Just because no written contract is in place for Tom does not mean a contract does not exist.
  • Tom initially attended an interview based on a potential offer of work from the agency for work at DEEWR. However, at DEEWR's request, Tom attended an additional interview where DEEWR made a totally different offer directly to Tom. Tom considered this offer, which he accepted. At the interview Tom was offered 3 months' work with a 3-month extension. As a consequence it is most probable that there exists a direct contract between Tom and DEEWR for at least 3 months' work and probably 6 months.
  • In this instance there is no contract between the recruitment agency and Tom---even though the recruitment agency paid Tom. The recruitment agency is most likely acting as an agent for DEEWR---that is, acting on and in the place of DEEWR.
  • The failure of DEEWR and the recruitment agency to present Tom with a written contract and Tom's presentation of his standard contract early in the work period give Tom some strong standing to claim that the terms under which he was prepared to work are in fact the terms of the contract he supplied. This is reinforced by the fact that neither DEEWR nor the recruitment agency responded to Tom's contract, but rather allowed him to continue to do the work. By not responding, DEEWR effectively allowed Tom's terms to stand as the de facto contract.
In our view Tom has a perfect right to claim payment from DEEWR for the balance of the 3-month contract owed to him. It is probably unlikely that he could claim payment for an additional 3 months, as this was a contract extension that was subject to further agreement.

Our view of the management issues
This situation reflects badly on the management capacities of DEEWR in particular, and the federal public service in general. It reflects ignorance of basic principles of legal contract and managerial arrogance toward compliance with the law of contract.

  • was sloppy in the way it engaged Tom. It did not follow through with its undertakings to ensure a written contract was put in place;
  • has acted unfairly and irresponsibly in making representations and undertakings to Tom with which it failed to comply.
Tom appears to have acted in good faith at all times. The same cannot be said of DEEWR.

Remember, DEEWR, the Department of Education, Employment and Workplace Relations, is the federal department charged with overseeing the Fair Work Act (FWA). Its responsibility is to oversee the application of the FWA to ensure fair treatment of employees. But in this instance it has not applied the same principles of fairness to its engagement of Tom, an independent contractor.

The practical position of Tom
Tom is in a difficult position. He has tried to resolve the issue by having meetings with appropriate senior people in DEEWR. They have refused to alter their position. Tom has looked at various legal avenues, one being the unfair contract provisions of the Independent Contractors Act. This could be an avenue. The case could be fairly simple because this appears to be a straightforward breach of contract by DEEWR.

However, any legal avenue could involve considerable legal expense on Tom's behalf. A simple Magistrates Court action could easily cost Tom $10,000 to $15,000 and an enormous amount of his time, taking him away from his normal income-earning work. For DEEWR, if Tom were to take legal action, the issue would simply be handed to government lawyers with the expense being a budget annoyance. Tom, a lone individual, is confronted by the 'machine' of government.

The other risk for Tom is potential damage to his income-earning capacity through the denial of future contracts. Like any industry, reputation in the IT sector is important. By taking legal action against DEEWR, regardless of his rights, Tom risks being unofficially black banned from future government, and even private-sector, work.

Tom probably has clear legal rights but faces a commercial 'catch 22'. That is, there seems no easy resolution to this for him.

The public policy issues
As we see it, Tom's case is a perfect example of a breach of integrity of contract which ICA has set as one of our core long-term campaigns. ICA has seen plenty of these cases in the past which have adversely affected architects, designers, engineers, trades people, academics, IT professionals and many others. Most of the time, people don't bother pursuing the matter---they give up and move on looking for alternative work. Large organisations, either government or private, rely on this. They have the commercial advantage of being 'big' which allows them to keep behaving badly.

In this instance Tom has been prepared to bring this matter to us and allow us to give it some publicity. He takes a risk. DEEWR will very quickly work out who Tom really is! He may find himself unofficially black banned from future government work. Recruitment agencies might do the same.

But Tom supports our integrity of contract campaign. He believes that by allowing a real, practical example to be publicized that this may trigger some reform. If reform can be achieved, other people may not find themselves in his position. Our hope is the same.

Understanding management and independent contractors/self-employed people
The behaviour of DEEWR is typical of what we often witness in large organisations when they utilize the commercial services of independent contractors. Inside any large organisation the quality of individual managers can and will vary widely. Some managers are good and some are bad. Employment law and all its regulations have created highly complex processes to restrict the uncontrolled decision-making ability of managers so that they cannot act 'unfairly' towards employees.

What sometimes happens in large organisations is that some managers (mistakenly) believe that by engaging services through commercial contracts they can structure the contracts so that they can do what they like. However, commercial contracts do not allow managers to do what they like. Commercial contracts are governed by strict legal principles that require compliance. Commercial contracts impose rights and obligations on both parties equally.

What is it we seek?
a) That large organisations which seek to engage independent contractors:
  • Take contracts seriously and ensure that management behaviours conform to the contractual undertakings into which the organisation has entered.
  • Ensure that the contracts are even-handed, creating rights and obligations equally for both parties, and are not structured solely to protect the alleged rights of the large organisation.
  • Willingly and quickly seek to engage in simple mediation processes in the event of disputes, be prepared to pay for the mediation and comply with mediation recommendations.
b) As the largest of organisations in the country, we call on governments at all levels to set best-practice standards in contract adherence when engaging independent contractors, thereby providing leadership for the rest of the business community.

c) Finally, we urge that simple consumer law-like dispute-resolution procedures be established, similar to those under the Fair Trading Act in Victoria and administered by the Small Business Commissioner in Victoria. Further, that these laws apply not only to the private sector but with equal force to government organisations in their commercial dealings with self-employed people.

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