Laws affecting contracts

It’s important to know the difference between an employee and a contractor when working out which federal, state or territory laws apply to a contract.

• Employee contracts must have at least the minimum terms and conditions of employment as regulated by employment laws.

• Contractors have commercial contracts. These are subject to commercial laws that apply to business dealings.

Check with an industry association, union or lawyer to make sure any contracts follow the relevant laws.

The Independent Contractors Act 2006 overrides state and territory laws that would otherwise apply to contractors. There are some areas where the Independent Contractors Act does not override state and territory laws:

• owner-driver laws in Victoria and Western Australia
• some owner-driver laws in New South Wales
• national outworker laws.

The Fair Work Act 2009 protects contractors from adverse action, coercion or abuse of freedom of association. For example, from a hirer who refuses to engage a contractor because they’re a union member or because they’ve made an unfair contract claim before. The Fair Work Act also sets out penalties for hirers who engage in ‘sham’ contract arrangements.

Under both Acts, contractors can have their services contract reviewed if they think it has an unfair term. Contractors can apply to the Fair Work Commission (FWC) or relevant court. The unfair term must relate to a workplace relations matter, such as:

• pay
• leave
• hours of work.

The Australian Consumer Law (ACL) protects small businesses from unfair terms in business-to-business standard form contracts. These are pre-written contracts a business offers on a 'take it or leave it' basis. 

Your business may need to accept a standard form contract for services that are essential to running your business, such as: 

• internet
• phone
• utilities (gas, water and electricity).  

Under the ACL, a contract term is unfair if:

• it causes a big imbalance between each parties’ rights or obligations under the contract
• the contract doesn’t need the term to protect the legitimate interests of the party who would benefit from it
• it would cause financial or other harm to either party.

A court or tribunal can cancel a contract term if it finds it unfair. If the contract can continue without that term, then the rest of the contract remains unchanged and legally binding. 

Unfair contract law doesn't apply to terms that:

• set the upfront price payable under contract
• define the main subject matter of the contract, such as the goods or services
• the law needs or expressly permits
• both parties have negotiated.

Businesses may need to consider sale of goods laws. These laws focus mostly on sale of goods contracts for business-to-business transactions.

If you do business in multiple state or territories, you may need to meet the laws of each one. Get legal help if you’re unsure if these laws apply to your business.

State and territory laws

• New South Wales: Sale of Goods Act 1923
• Australian Capital Territory: Sale of Goods Act 1954
• Northern Territory: Sale of Goods Act 1972
• Queensland: Sale of Goods Act 1896
• South Australia: Sale of Goods Act 1895
• Tasmania: Sale of Goods Act 1896
• Victoria: Goods Act 1958
• Western Australia: Sale of Goods Act 1895

Small businesses or contractors can join with their competitors to form a collective bargaining group. This can help them negotiate better terms, conditions and prices with common customers or suppliers.

Competitors who form collective bargaining groups must not engage in anti-competitive behaviour. Anti-competitive behaviour may result in serious penalties.

A collective bargaining group must apply to the ACCC for a class exemption before they start bargaining. Otherwise, they risk breaching competition laws.

Federal, state and territory laws protect people from discrimination and harassment.

Discrimination happens when a person or group treats others less favourably because of traits such as:

• race
• colour
• sex
• age
• disability
• religion.

Hirers can’t refuse to hire a contractor or change a contract’s terms based on any trait that’s discriminatory under law. 

Both hirers and contractors have obligations and responsibilities under anti-discrimination laws. They must not bully, harass or discriminate against anyone while under contract.

Find out more or complain about discrimination or workplace bullying through the Australian Human Rights Commission.

It’s important that hirers and contractors understand their tax obligations. 

Tax rules do not directly affect the contract between a contractor and hirer. However, if a contractor must charge goods and services tax (GST), the tax rules may indirectly affect:

• the potential profitability of the work
• what a contractor charges for their services.

Contractors with an ABN are responsible for reporting and paying their own tax, unless they make a voluntary withholding arrangement with the hirer. More information on voluntarily withholding tax is available from the ATO.

If a contractor doesn’t give a hirer their ABN, the hirer must withhold the top rate of tax and send it to the ATO. More information on withholding tax is available from the ATO.  

Hirers may need to pay a contractor’s superannuation (super) if:

• they mainly pay them for their labour and skills (not a specific result)
• the contractor does the work themselves (doesn’t get someone else to do the work).      

Hirers can change the contract price to reflect the extra expense of paying the contractor’s super.

Partners in partnerships are responsible for paying their own super. This is regardless of whether the contract is for labour or to achieve a result.

Owners of companies and trusts must pay themselves super if they are paying themselves as a director or employee.

Hirers must pay the superannuation guarantee charge (a tax penalty) if they either:

• don't pay enough super
• pay to the wrong super fund
• miss the payment cut-off dates.

Use the ATO's am I entitled to super? tool to find out who pays.

The Heavy Vehicle National Law (HVNL) protects transport industry drivers in:

• New South Wales
• Victoria
• Queensland
• South Australia
• Tasmania
• The Australian Capital Territory. 

It also applies to heavy vehicles from Western Australia and the Northern Territory when they cross into a state or territory where the HVNL applies. 

The law bans the use of contracts that cause or encourage drivers of heavy vehicles from breaking the law. This includes driving:

• over the speed limit
• while impaired by fatigue
• while in breach of the driver’s work and rest hours option.

Each state and territory (as well as the Australian Government) has its own work health and safety (WHS) laws and regulators.

Contractors and hirers must comply with WHS laws to protect people’s physical and psychological health and safety in the workplace. That includes anyone working for them as well as other people, such as customers or visitors.

Workers compensation is a type of insurance that gives workers a safety net if they become injured or ill because of work.

Each state and territory (as well as the Australian Government) has its own workers compensation laws and insurance schemes. 

Workers compensation covers some contractors. Hirers should check with the regulator in their state or territory to see if they need workers compensation insurance for contractors they hire.

Contractors (including sole traders):

• need to get their own insurance (such as accident and sickness insurance) if workers compensation doesn’t cover them

• may need workers compensation insurance for any workers they hire. Check with the regulator in your state or territory.

Security of payment laws help contractors in the building and construction industry recover payments for work they did.

• Each state and territory has security of payment laws.
• Laws cover contractors in the state or territory where they did the work.
• Construction contracts can be verbal or written. 

In most states and territories, contractors can issue the hirer with a payment claim. This gives the hirer a strict timeframe to pay upfront or under a payment schedule.

If the hirer doesn’t respond to the claim, the contractor can take the dispute to adjudication to recover the unpaid money.

Use the Australian Small Business and Family Enterprise Ombudsman's dispute support tool to find the relevant state or territory authority.

Contracts where the hirer is based overseas may need to comply with the laws of the hirer’s country. Any free trade agreement Australia has with that country may also affect the contract.

International laws may also apply if the hirer is in Australia, but some or all of the work is done in another country. 

The laws of other countries may be different from Australian law in areas such as:

• import procedures
• taxation
• employment practices
• buying, selling or exchanging currency
• property rights
• protection of intellectual property
• agency or distributor arrangements.

Before signing a contract, it’s a good idea to get advice from a lawyer in the relevant country.

Austrade is the Australian Government's trade and investment development agency. It has offices overseas that can help find a legal representative.