Industrial Relations Service Providers - What are you signing up for?

Industrial Relations Service Providers - What are you signing up for?

Some members have recently contacted me about IR services and the types of services that are on offer. Additionally, I have had an opportunity to discuss the issue with our Queensland colleagues who have had similar questions from members. Please see the below case to get the full picture.

Article courtesy of DWF

Contracts for industrial relations services are becoming increasingly common. The companies that supply these services regularly seek to charge exorbitant fees. This is particularly dangerous when forms are ‘streamlined’ and completed online, meaning the contract may not be examined in sufficient detail and may lock the employer in for a substantial period of payments.

The NSW Supreme Court has recently ruled on the requirements and enforceability of a contract between an employer and industrial relations service provider, Employsure. The decision highlighted the key contract features to be wary of in such arrangements.

The case

In Zintix v Employsure the NSW Supreme Court ruled that industrial relations service provider Employsure could not enforce a contract that required an employer to pay out the balance of its five-year contract when it quit after eight months.

In March 2014 Employsure and Zintix signed the contract which offered the employer contract management services and advice on ‘all workplace relation matters’. Provisions in the contract purported the initial contract period to be five years, with an automatic continuation after the period unless either party gave six months’ notice of termination.

Payments were due by Zintix every month, totalling $18,000 for the five-year period, excluding GST. There was no provision for early termination. Clause C of the ‘Further Terms’ stated: ‘failure to adhere to the above payments will result in the total balance outstanding becoming payable immediately in full’.

Zintix used the services and made the contractual monthly payments until November 2014. Employsure sued for the remaining payments.

Was clause C a penalty clause?

A penalty clause is a term in a contract which imposes a collateral detriment on a party upon failure of a primary contractual stipulation, which is extravagant or unconscionable in comparison to the conceivable loss suffered by the innocent party. The result is that the penalising clause is unenforceable.

The Local Court Magistrate who first heard this matter interpreted clause C as an acceleration clause of the primary obligation and not a penalty clause with a collateral obligation. This was because there was nothing indicating the clause intended as a deterrent or punishment. As such, his Honour ordered Zintix to pay Employsure the remaining costs relevant to the contract period.

Zintix appealed to the NSW Supreme Court, where Justice Walton overturned the Magistrate’s decision. The Court decided that the Magistrate had not adequately considered whether or not clause c was a reasonable estimate of potential losses. The Court found that payment of the whole fee outstanding exceeded what would be reasonable compensation for an early termination of the contract and therefore clause C was not a valid clause.

The Court also noted that clause C purported to operate regardless of whether the breach was substantial or trivial, or whether the services provided were inadequate. According to the contract terms, Zintix would be entirely unable to re-evaluate the services or exit the contract.

Clause C’s purpose was ‘plainly to coerce performance of the contract by [Zintix]’. Justice Walton therefore held it as a penalty clause, so the remaining fees were not payable.

What to look out for

Employers need to be wary when entering contracts for industrial relations services to ensure they are agreeing to a fair contract. Contracts should always contain an expiration clause and reasonable methods for all parties to terminate the contract before that expiry. Employers should not have to rely on litigation to end a contract. The fees associated with the contractual relationship should be negotiated so neither party is put at a disadvantage.

A number of RFNSW members have recently experienced these types of issues with industrial relations service providers. Before signing a contract for services such as these, contact Road Freight NSW for assistance and advice.

  • Zintix (Australia) Pty Ltd v Employsure Pty Ltd [2018] NSWSC 924 .
  • Ibid.
  • Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28.
  • Zintix (Australia) Pty Ltd v Employsure Pty Ltd [2018] NSWSC 924 .
  • Ibid, [138].

Lastly, in December 2018, the ACCC issued the following notice entitled: Employsure in court over Misleading Advertising and Unconscionable Conduct Allegations

To register for the RFNSW IR Breakfast on major and upcoming changes to industrial relations in Australia:

Road Freight NSW partners with the AiGroup and our members receive free workplace relations advice from a dedicated hotline. The AiGroup have been an employer representative since the 1880’s and Road Freight NSW has been representing members since 1893.

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Road Freight NSW contact details

56 Fitzroy Street Marrickville NSW 2204

Tel: (02) 9557 1205

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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