Part 2: Conduct during negotiations

04. Unconscionable conduct during negotiations

This Code does not prevent hirers or contractors from acting vigorously in their own commercial interests. However, each party should deal with the other party or parties fairly and in good faith when negotiating a new contract or a variation to a contract.

EXAMPLE 4.1

Wal was given a contract to look over. The clause about goods in transit insurance was complex and hard to read. Wal asked the company’s manager whether it meant he had to take out a new policy. The manager said he was pretty sure the insurance arrangements hadn’t changed but he wasn’t really certain. Wal signed the contract and sent it with a letter saying he was told the insurance was the same as before, but asking that the company tell him if this wasn’t right. The company didn’t reply. A dispute arose later about some expensive goods damaged in an accident, and the company argued that Wal was obliged under the contract to take out the insurance. The company’s failure to correct Wal’s misunderstanding in circumstances where it was brought to its attention and not corrected is likely to constitute unconscionable conduct under section 31 of the Act, and Wal could notify a dispute to the Small Business Commission.

EXAMPLE 4.2

Ajani was looking for work. He responded to an advertisement seeking couriers. He was given a long and complicated contract. Ajani has trouble with English and said he needed to have a friend with good English read the documents. The manager said if Ajani wanted the job he would have to sign on the spot and pay $1000 to cover the “set up costs”. Ajani was anxious to find work and the manager was persuasive, so he signed and paid. He later realised the contract paid well below the going rate and it was impossible to make a living from the rates paid.

The company refused to refund the $1000. The company’s conduct is likely to constitute unconscionable conduct under section 31 of the Act, and Ajani could notify a dispute to the Small Business Commission.

EXAMPLE 4.3

Bill works for a company that provides waterfront services using both contractors and its own employee drivers.

Bill is planning to retire and is negotiating to sell his truck to the company. Bill persuades the other contractors to refuse to work unless Bill’s demands are met. Bill and

the other contractors’ conduct may be in breach of their contracts and is also likely to be unconscionable conduct within the meaning of section 32 of the Act. The company could notify a dispute to the Small Business Commission and could also seek an urgent injunction in the Tribunal.

The conduct described above is not an exhaustive description of conduct during negotiations that may be unconscionable conduct within the meaning of either section 31 or 32 of the Act.

EXAMPLE 4.4

A company is seeking new contracts with its drivers. Even though the company knows Darren has problems with reading complex documents, the company insists the offer is only open for 24 hours. Darren feels pressured to sign even though he doesn’t understand the contract and hasn’t had a chance to get his accountant to read it for him. This conduct is likely to constitute unconscionable conduct under section 31 of the Act, and Darren could notify a dispute to the Small Business Commission.

EXAMPLE 4.5

Uri and Jack have an expensive specialised vehicle

that can carry oversized farm machinery from sea ports to dealers. A machinery importer is the only business

in Victoria with a need for this kind of vehicle. There are two possible scenarios in this situation of a limited market that may result in unconscionable conduct –

1. knowing that Uri and Jack have no other potential customers for their vehicle, the company tries to force a significant rate reduction that makes the business unprofitable; or
2. knowing that the company is reliant on their vehicle to perform its contracts with customers, Uri and Jack threaten to refuse to accept work over the busiest period of the year unless the company pays a significant rate increase.

05. Best practice in negotiations

BEST PRACTICE

EXAMPLE 5

A large construction project involving significant excavation is proposed. This will require Mohammed, the hirer, to engage a number of owner operated trucks. Sarah, who has many years’ experience in the procurement of trucks for infrastructure projects, has established a business negotiating agreements between owner operators of trucks and those that engage them.

Paul, Marcelle, Sharon and Cathryn are owner drivers who are keen to be engaged on the project and they engage Sarah as their negotiating agent under the Act.

Sarah successfully negotiates terms that suit Mohammed and the owner drivers. All parties are extremely happy.

Word soon spreads about the agreement amongst other owner drivers looking to obtain work on the same construction project. They wish to be engaged on the same terms and conditions. Mohammed also wishes to use the terms and conditions of the agreement that was negotiated with Paul, Marcelle, Sharon and Cathryn.

The Act makes it clear that the terms and conditions negotiated by a negotiating agent under the Act may be offered to owner drivers who did not appoint the negotiating agent.

06. Parties must not claim to exclude the Act or other laws or the Code

MANDATORY REQUIREMENT

Section 65(1) of the Act provides that a provision of a contract is void to the extent that it is contrary to the Act or this Code.

EXAMPLE 6

A freight forwarder has included a clause in its contract stating that the contractor waives the requirement under section 23 of the Act that a hirer cannot deduct money for insurance unless a copy of the relevant policy has been given to the contractor. The contract also provides the contractor is not permitted to notify a dispute to the Small Business Commission. These clauses are invalid and unenforceable.

07. Disclosure of information

Fair business dealing requires parties to exchange information about their changed plans and dealings that may have an impact upon the other party’s business. This exchange of information should be ongoing throughout the relationship, and not just at the time a contract is entered into or renewed. Sections 31(2)(h) and 32(2)(h) of the Act provide that a factor to be considered in determining whether a hirer or a contractor has acted unconscionably is where that party unreasonably fails to disclose to another party proposed conduct that might affect the other party’s interests, or does not disclose any risks that that party should have foreseen would not be apparent to the other.

EXAMPLE 7.1

Alf’s hirer is a small freight forwarder who has 2 major clients. One of those clients has just appointed a receiver, and it appears likely that the hirer might only get paid 20 cents in the dollar on debts it is owed. The hirer already owes Alf for more than 20 days’ work. The hirer should inform Alf immediately of the development and discuss how they will deal with the situation. Either party could seek the assistance of the Small Business Commission.

EXAMPLE 7.2

Kolya worked for a freight company that did most of its work for a chain of homeware stores. After discussing his plans with his hirer, Kolya invested in a new B Double and entered a 5-year finance contract. Kolya wasn’t told that the contract between the hirer and the chain of homeware stores was up for renewal. The contract wasn’t renewed, Kolya lost the work and was stuck with the new vehicle and payments. The company should have told Kolya that the contract with the customer was not yet secured, particularly knowing that he was buying a new vehicle in reliance on secure work. Kolya could notify a dispute to the Small Business Commission.

08. Dispute resolution

Part 5 of the Act provides a process for the resolution of disputes between hirers and contractors, including mediation by the Small Business Commission. If this does not successfully resolve the dispute, the party who notified the dispute may refer the matter to the Tribunal for determination.

However, except in urgent circumstances, parties should first seek to resolve any dispute between themselves informally before using the disputes process provided under the Act. Work should continue as normal while the parties attempt to resolve the dispute.

MANDATORY REQUIREMENT

A party to a dispute must not insist that the other party exhaust any process agreed between the parties for the resolution of disputes before referring the dispute to the Small Business Commission.

BEST PRACTICE

If a dispute arises, the aggrieved party should do the following –

1. notify the other party of their concerns when th eissue arises;
2. advise the other party what they would liketo happen to resolve the dispute;
3. provide a reasonable time period for resolution;
4. accept any invitation to meet with the other party to attempt to resolve the dispute;
5. act professionally and courteously at all times;
6. continue to perform or offer services as normal while the dispute is being dealt with;
7. ensure services are being performed in a safe manner;
8. attempt to use any process agreed between the parties for the resolution of disputes.

If an unforeseen event occurs beyond the parties’ control (such as a road closure) the parties should work together to find a way of dealing with the situation that is fair and equitable.

09. Misleading advertising

MANDATORY REQUIREMENT

1. A hirer seeking to engage a contractor must not make any representation to the contractor, including through advertisements or in interviews–
   1. that the hirer knows to be false, or which the hirer is reckless as to whether it is correct; or
   2. that is misleading or deceptive or likely to mislead or deceive.
2. For the purposes of this section, representations that are likely to mislead or deceive include the following –
   1. a representation that a contractor can earn a certain amount where it is not reasonably possible for a diligent contractor to earn that amount;
   2. a hirer guarantees a contractor an enforceable minimum level of income or number of hours of work for a certain period of time, but–
      1. does not make it clear that the minimum is only for that period; or
      2. in circumstances where the engagement is to continue beyond that period, does not provide any information to the prospective contractor about expected earnings after that period expires;
   3. a hirer provides estimates of earnings to a contractor but fails to indicate whether the figure is a gross figure (that is, that the contractor will incur overhead costs in earning that amount) or a net figure (the figure after expenses are taken out).

EXAMPLE 9.1

John sees an advertisement in the local paper that says drivers will “earn in excess of $1500 per week”. John starts work, but then finds out from the other drivers that their average gross income for the last year has been less than $900, and that no-one has ever managed to earn more than $1200 a week. John could notify a dispute to the Small Business Commission over this breach of the Code.

EXAMPLE 9.2

A courier company recruits new drivers with advertisements stating “guaranteed minimum 38 hours a week”. However, after Herman started with the company, and after he painted his vehicle in the hirer’s livery, he was given a contract that said the minimum hours only applied for 3 months then it was “up to the driver to bring in the work”. After the 3 months, Herman’s hours drop back to less than 20 a week. Herman could notify a dispute to the Small Business Commission over the hirer’s breach of the Code.

EXAMPLE 9.3

A pizza restaurant advertised for a delivery driver. The advertisement states “guaranteed $100 per night”. The pizza restaurant should make it clear whether this is a gross (before expenses) figure, for example, by saying “$100 per night (less expenses)” or a guarantee of earnings after expenses are taken out.

10. New vehicles or motorised equipment

Hirers occasionally require existing contractors to upgrade their vehicles or motorised equipment. This can involve substantially higher overhead costs and a much greater level of capital investment. Unfairness is likely to result in these circumstances if the terms of the contract are not reviewed to make sure they remain reasonable and appropriate.

MANDATORY REQUIREMENT

If a hirer requests or requires a contractor to supply a vehicle or motorised equipment that is different to the vehicle or motorised equipment supplied by the contractor under a contract with the hirer, or if the contractor identifies a legitimate need to upgrade the vehicle or motorised equipment, the hirer must enter into negotiations with the contractor for variations to the contract for that purpose, and in doing so have regard to the following –

1. any increase or decrease in the contractor’s costs associated with the purchase and operation of the requested vehicle or motorised equipment;
2. the appropriate level of commercial security, having regard to the nature of the vehicle or motorised equipment provided and the amount of the investment;
3. the need for the contractor to have reasonable security over his or her business assets (for example, a contract of appropriate duration, a minimum number of hours or income, or both);
4. the impact upon efficiency and productivity as a result of the upgraded vehicle or motorised equipment.

If, after these negotiations, the hirer agrees that a different vehicle or motorised equipment may be supplied by the contractor, the hirer must set out in writing the terms and conditions being offered for the services using the different vehicle or motorised equipment, and must do so before the contractor purchases or otherwise commits to supplying the vehicle or motorised equipment.

If the hirer requires particular specifications for the different vehicle or motorised equipment, the specifications must be provided in writing to the contractor.

BEST PRACTICE

Prior to entering into negotiations to vary an existing contract, the hirer should provide the contractor with a copy of the applicable rates and costs schedule.

11. General principles for setting and reviewing rates

A hirer should offer and pay to a contractor a rate of remuneration that is commensurate with the rates typically paid within the industry for similar services, and which meets an efficient contractor’s business costs and provides a return to the contractor that recognises the contractor’s capital investment.

The elements of remuneration are the following –

1. an amount that represents the recovery of the fixed and variable costs incurred in performing the services required;
   
   A hirer is not required to calculate the actual individual overhead costs of a particular contractor, but must consider the typical and efficient overhead costs of a contractor with the required type of vehicle or equipment. ²
   
2. an amount that represents a fair return for the contractor’s labour; For an owner driver, this is a fair amount for the owner driver’s labour in driving, loading and unloading the vehicle and associated activities such as administration. A fair return for the owner driver’s own labour should be reflected in the contract between the parties.
   
3. an amount that represents a return on the contractor’s investment. Contractors are businesses and therefore aim to make a return on their business investment, that is, a profit. Contractors may supply significant assets and carry significant commercial risk, and can reasonably expect to receive an amount over and above their efficient operating costs and their own labour as a reward for that risk and investment. The amount that is a reasonable return on investment will vary widely in all the circumstances, and may vary over time as market conditions change.

Factors that influence what is a reasonable return on investment can include the following –

1. the amount of the capital investment in the vehicle or equipment;
2. the level of commercial risk assumed by the contractor;
3. the security and certainty of the arrangements;
4. whether the vehicle or equipment provided by the contractor can readily be used to provide services to other persons;
5. whether the vehicle or equipment is also used for personal use;
6. the efficiency and productivity of the contractor;
7. the market for the services.

EXAMPLE 11

A freight forwarder has a fleet of twenty contractors with B Doubles, and all contracts are up for review. In deciding what rate to offer, the hirer uses a cost model that is based on the typical or average operating costs of a B Double based on a three year old vehicle under finance, that requires eight mechanical services a year. Some of the contractors have individual finance payments that are higher or lower than the benchmark used to prepare the rate model, depending on the amount that they have each borrowed. Some will have older vehicles (that require more services) or newer vehicles (that require fewer services). The use by the hirer of this benchmark model meets the requirements of this section.

12. Additional matters to be considered in setting rates

In addition to the matters set out in section 11, hirers should also take the following matters into consideration when negotiating rates of remuneration with contractors –

1. the whole of the activities to be performed by the contractor for the purposes of the contract;
2. where the customer pays additional rates or levies;
   It is common for arrangements between hirers and their customers to provide that the hirer receives additional payments or higher rates in certain circumstances. With the rising cost of fuel, customer fuel levies are common. Some hirers have acted unscrupulously by not giving the contractor any benefit of such a loading or increase, even though it is the contractor and not the hirer who has actually had to bear the increased cost caused by a rise in fuel prices.
3. where the contractor provides services to the hirer on an exclusive basis;
   Contractors are businesses, not employees. They are not obliged to work solely for one hirer unless this is agreed between them. However, hirers often require contractors to make themselves available to accept work on a full time basis, and not to work for anyone else. Often the contractor is required to paint their vehicle in the hirer’s or customer’s livery, meaning that regardless of the terms of the contract, the vehicle is not able to be used to perform work for other customers.
4. the need for a regular and systematic review of fixed & variable overhead costs.
   Section 31(2)(k) of the Act provides that a matter to be considered in determining whether a hirer’s conduct is unconscionable is whether or not the contract allows for the payment of any increases in fixed and variable overhead costs on a regular and systematic basis. This means that a contract which locks up a contractor’s rates for long periods of time without regard to increases in overheads (particularly fuel prices) will be susceptible to a claim of unconscionable conduct.
   
   Note: Part 5 sets out certain practices that constitute a review of rates for increases in overhead costs in respect of forestry contractors on a “regular and systematic basis”.
   
   

EXAMPLE 12.1

Mark delivers cars for a chain of car dealerships, exchanging new and traded-in vehicles between the dealerships all over the State. Most journeys he makes involve transferring just one car at a time. He is paid a rate based on the number of cars carried and the number of kilometres, but only for the kilometres he travels when hi vehicle is loaded. The rates paid do not make any allowance for the unloaded journey to collect the vehicle from the dealership, or for returning to the base.

This means that after taking account of the running cost of the vehicle, Mark is earning less than $10 an hour for all the work required to perform the requested services. The relevant terms of the contract are likely to constitute unjust contract terms within the meaning of section 44(1)(g) of the Act, and Mark could notify a dispute to the Small Business Commission.

EXAMPLE 12.2

A courier company has calculated that on average, it takes a certain number of minutes for its couriers to collect or deliver goods. The company pays on a fixed run rate based on the suburbs between deliveries, and builds into that rate an amount for the contractor’s labour for that average time spent in collecting or delivering the goods. Sometimes an individual courier may have to wait for a longer or a shorter period, but on average, over time, they receive compensation for the time worked.

The relevant terms of the contract are unlikely to constitute unjust terms within the meaning of section 44(1)(g) of the Act.

EXAMPLE 12.3

Nina runs a 2-tonne van. In 5 years, her hirer has only increased the rates paid to its contractors by $1 an hour. At the beginning, Nina earned $900 a week on average, of which about $270 was spent on fuel. Because of the significant increase in the cost of fuel over the last 5 years, Nina is now spending over $450 a week on fuel, and the total return for her labour and investment is now well below $10 an hour. The company refuses to negotiate a new rate, saying the market is too competitive. However, the company’s contracts with its customers allow it to charge an increased price whenever the cost of fuel increases by more than 5 cents a litre. The company simply pockets this customer price increase as it is the contractors who pay for the fuel. This conduct is likely to be unconscionable conduct within the meaning of section 31 of the Act, and Nina could notify a dispute to the Small Business Commission.

EXAMPLE 12.4

Mick carries road base to road construction sites. His hirer is tendering for a new road building project and asks the contractors to agree to a fixed rate per load for the three months of the project. The price that is negotiated takes into account the fact that the cost of fuel may increase during that time. This conduct is unlikely to be unconscionable conduct within the meaning of section 31(2)(k) the Act.

13. Reduction in remuneration for carrying smaller loads

Contracts generally provide for rates which are based upon the running costs of the type of vehicle provided, for example, a two-tonne van. Where the contract between the parties permits, the contractor may agree to accept offers from the hirer for loads that could be carried in a smaller vehicle for a reduced rate of remuneration. Contractors may consider such occasional loads to be in their own interests, for example where the alternative is running the vehicle unloaded.

However, where the hirer regularly directs the contractor to undertake work for such reduced rates, the end result may be that the contractor is unable to cover the higher operating costs of the larger vehicle.

14. Payment of invoices

Contractors frequently have limited working capital. This means it is not reasonable to expect them to carry operating costs for excessive periods. The period allowed for payment of invoices should provide for regular payments sufficient in the circumstances for the contractor to maintain a reasonable cash-flow to operate their business. Under section 24A of the Act, hirers must pay contractors within 30 days after receiving an invoice, unless there is a dispute over the amount payable or a different payment period has been agreed that is not unfair to one of the parties.

EXAMPLE 14

Bob works as a long-distance driver. Section 24A of the Act requires the hirer to pay him within 30 days, unless a different payment period has been agreed that is not unfair or there is a dispute over the amount payable. Bob’s contract is silent on when he should be paid, but his hirer regularly pays Bob after 90 days, and sometimes even later than that. Bob complained but the hirer told him “you’ll get paid if and when we get paid”. In these circumstances, payment more than 30 days after receipt of an invoice is likely to breach section 24A of the Act. Furthermore, this is likely to constitute unconscionable conduct within the meaning of section 31 of the Act.