23 Apr Services Agreements – Failure to Follow Directions
In the recent decision of Tredders Investments Pty Ltd as trustee for Warren Tredrea Trust & v Channel 9 South Australia (No 3) [2024] FCA 233 (Tredders), the Federal Court of Australia (Court) considered whether a services agreement could be terminated based on a party’s failure to comply with lawful directions.
Facts
The second applicant, Warren Tredders, was employed by the respondent, Channel 9, from around 2005. In 2018, the second applicant established a trust with a corporate trustee (the first applicant).
The first applicant and the respondent entered into a services agreement with the second applicant as a Key Person. The services agreement included the following terms:
1. The Key person must comply with all reasonable directions of the respondent.
2. The first and second applicant must comply with the respondent’s policies and procedures.
3. The respondent may terminate the services agreement without notice if the first or second applicant disobey a lawful direction.
In 2022, the respondent implemented policies relating to COVID-19 requiring all staff, including contractors, to be vaccinated against COVID-19. The second applicant was not vaccinated against COVID-19. The respondent directed the second applicant not to attend work for a period of around one month. After around one month, the respondent terminated the services agreement.
Decision
The applicants submitted to the Court that the respondent’s directions were not lawful directions as they were not reasonable. This argument was framed such that the terms of the services agreement were similar to that of an employment agreement, and an employee can be terminated for disobedience of a direction only if it is a reasonable one.
The Court distinguished employment agreements from services agreements. The Court explained that an employee’s obligations to obey “lawful and reasonable” commands derives from common law obligations (Thompson v IGT (Australia) Pty Ltd [2008] FCA 994), whereas directions given in the context of a services agreement need to be set out in the contract.
The applicants’ application was dismissed on the basis that the termination provision within the services agreement was engaged because the direction given by the respondent was lawful and that consideration as to whether the direction was “reasonable” was not a necessary element.
Conclusion
Tredders provides useful guidance on the distinctions between independent contractors and employees. This is important in circumstances where an independent contractor is performing a role that is similar to that of an employee. It also highlights the importance of understanding your obligations in relation to services agreements.
For more information on services agreements and independent contractor relationships, see our article here.
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