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The debate: Fair contracts or not-fair contracts?

3 December 2010

Earlier this week we released 'Unfair Contracts ..Suck it up!'

I was responding to criticisms of ICA that we were being business naive in pushing our fair contracts campaign. I've tried to explain clearly our approach. It's about ensuring integrity in contract structure that enables people to assess and take their own business risk. We've had quite a response!
  • Glenn says there's a brewing storm over contracts he's involved with
  • John says that, under the 'Marxist' view, the peasantry has been replaced with self-employed people! Ouch!
  • Guy says that if there is trust, then there is efficiency.
  • Pat from the UK says "Our contract law is a joke."
  • And, further, John also says that a contract is supposed to be a meeting of minds.

From Glenn: Brewing storm

Hi Ken,
Just a quick note to let you know how much I enjoy and appreciate your work.
I have an upcoming dilemma that may interest you regarding a new contract from my current engagement which is 33 pages of clauses in a "specified personnel" deed to be signed and witnessed by a JP. It's an addendum to an agreement with State of ... via a "mandatory" preferred supplier that I am forced to engage thru.

I kept copies of a previous agreement which I refused to sign if you would like a confidential review. It seems full of dangerous and unfair conditions which have been drafted by ... Govt Barristers and are quite exhaustive and conditional upon the agency meeting its terms. Let me know if you are interested as I can see a storm brewing over this one.

From Guy: If there is trust, then there is efficiency

Read your article. Very good. No arguments from me. I would have liked to see you take the illegal clause thing further to really drive it home. You are correct in that the court will not enforce an illegal contract clause and the logical extension of this is that they will not enforce commercial terms that are unfair. It is the law that governs contracts - not lawyers. I really liked the reference to "standard contract" as I think that this is the logical conclusion of this matter. Just as there was outrageous abuse of contracts by real estate agents (rentals) and car salesmen (used cars) under their own contracts the same thing is happening in the recruitment industry.

May I suggest that the integrity of contract issue by broken into chunks and that each chunk is addressed one step at a time. I think that it would be interesting to gather the data on how independent contractors are engaged.

Owner drivers might be engaged under a commercial agreement directly with the transport company. I am not sure how they find out about the work but I imagine that they have to eventually contend with large organisation's contracts. Management consultants and IT workers are usually engaged via recruitment firms and have to sign their contracts.

As such it might be difficult to address the owner driver issue in the short term but easier to rally for a standard form contract in the recruitment industry.

I think the most powerful argument about fairness is the issue of trust and commercial efficacy. Stephen Covey's book "The Speed of Trust" talks about an inverse relationship between trust, cost and time. He says that when trust is low things take longer and cost more. It is an obvious conclusion. If there is trust then there is efficiency. The other aspect is in relation to the "worth" of the contract. As your bank friends say, if a contract can be relied upon then it has value. That is all we want - something that we can rely upon. Otherwise it is just a dog eat dog environment and we all know which dogs generally win.

If this world really is based on self interest (as most lawyers and big business claim) then should we not repeal Medicare, disability rights, EEO and other legislation that seeks to protect those that require support? I was always under the impression that the measure of any decent society is based upon how they care for the weakest element. Somehow that seems to be forgotten when money is involved.

From John: A contract is supposed to be a meeting of the minds

I agree with the ICA stance on the extension of fair contracting protection to small business and independent contractors.

Like you, I am not a lawyer (however, I am a law student). Not all consumers are aged grandmothers at the mercy of rapacious salesmen and big business, but we should protect those who are defenceless. If we then look at the asymmetry of contracting that has developed with the emergence of the small business sector, we should be struck by exposure of small business to the same exploitative behaviour. We should recognize that the principles of contract were developed hundreds of years ago and have developed only slowly, perhaps not keeping pace with development in society. There are contracts in which the relative sizes of the businesses does create an environment where exploitative practices prevail.

The big business has its "take it or leave it" attitude. A contract is supposed to be a meeting of the minds. It is supposed to be entered without duress. But when a small company faces the prospect of going out of business or signing or renewing a contract it thinks is unfair, that is not a choice; nor is it even close to a meeting of the minds. It is naked exploitation of the uneven positions of the parties.

Also from John: The Russian peasantry has been replaced by small business and independent contractors

Why do trade unions and the Labor Party dislike independent contractors? One must go a long way back to locate the origins of this enmity.

In the debates between Karl Marx and Mikhail Bakunin (an anarchist) 1874-5 a significant difference appears, whilst Marx wanted to destroy capitalism, Bakunin wanted to destroy the state (attractive thought, a 'Delete Government' button).

In the 19th century the Russian peasantry comprised of small land-holders and independent farmers. Marx realised that the Russian peasants would never accept a dictatorship of the city-based workers, and thus, the state was required to coerce these independent and self employed persons into a workers' paradise.

For the Australian Marxists of the 21st century, the Russian peasantry has been replaced by small business and independent contractors. And make no mistake ÉÉ. and his trade union brethren are Marxists, and we small businesses and independent contractors are in their gun sights.

The theory of statism as well as that of so-called 'Evolutionary Dictatorship'â is based on the idea that a privileged elite, consisting of those scientists and doctrinaire revolutionistsâ who believe that theory is prior to social experience, should impose their preconceived scheme of social organization on the people. The dictatorial power of this learned minority is concealed by the fiction of a pseudo-representative government which presumes to express the will of the people.

Extract from Marx's Conspectus of Bakunin's Statism and Anarchy:
(BAKUNIN) e.g. the krestyanskaya chern, the common peasant folk, the peasant mob, which as is well known does not enjoy the goodwill of the Marxists, and which, being as it is at the lowest level of culture, will apparently be governed by the urban factory proletariat.

(MARX) i.e. where the peasant exists in the mass as private proprietor, where he even forms a more or less considerable majority, as in all states of the west European continent, where he has not disappeared and been replaced by the agricultural wage-labourer, as in England, the following cases apply: either he hinders each workers' revolution, makes a wreck of it, as he has formerly done in France, or the proletariat (for the peasant proprietor does not belong to the proletariat, and even where his condition is proletarian, he believes himself not to) must as government take measures through which the peasant finds his condition immediately improved, so as to win him for the revolution; measures which will at least provide the possibility of easing the transition from private ownership of land to collective ownership, so that the peasant arrives at this of his own accord, from economic reasons. It must not hit the peasant over the head, as it would e.g. by proclaiming the abolition of the right of inheritance or the abolition of his property.

The latter is only possible where the capitalist tenant farmer has forced out the peasants, and where the true cultivator is just as good a proletarian, a wage-labourer, as is the town worker, and so has immediately, not just indirectly, the very same interests as him. Still less should small-holding property be strengthened, by the enlargement of the peasant allotment simply through peasant annexation of the larger estates, as in Bakunin's revolutionary campaign.

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