Questions of conscionability

It is now a matter of record that on May 22, the NSW Industrial Relations Commission set out principles for the employment of children under Australian Workplace Agreements. It is also a matter of record that the Federal Government was unimpressed with the principles, instead asserting that there is already sufficient protection for young people, because they must have a parent or guardian's consent to sign an AWA.

I don't intend to engage the question of AWAs and young people directly, but my eye was caught by the Commission's statement, fairly early in its ruling, that "There can be no doubt on that evidence that children employed by some corporate employers in this State are presently being exploited in a most unconscionable way" (Child Employment Principles Case 2007 [2007] NSWIRComm 110).

An odd word, unconscionable, and one which the legal fraternity does not use lightly.

The doctrine of unconscionability arises from the law of Equity, and is derived from the traditional jurisdiction of the Chancery court. In short, the doctrine states that the courts will not allow a person to insist on their legal rights where it could be unconscionable for them to do so. A contract, in other words, which exceeds the bounds of fairness and decency, will not be enforced by the court regardless of whether the other elements of contract law are met.

The key Australian case on unconscionability is Blomley v Ryan (1956), in which the High Court claimed the power to refuse to enforce a contract "whenever one party to a transaction is at a special disadvantage in dealing with the other party because of illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affecting his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands."

Such a doctrine seems to be tailor made for employment situations. The crux of one central argument which has been levelled against WorkChoices (yes, I dare to use the verboten term!) is that it pits employees or prospective employees against employers or potential employers, in a situation where one party - the employer - holds all of the negotiating cards.

This is particularly so where the employees have low skills, are inexperienced, or are in a saturated labour market. The doctrine of unconscionability could leaven this situation somewhat. Mind you, the doctrine doesn't demand absolutely fair outcomes - just outcomes which can be considered within the bounds of decent conscience.

Prior to the WorkChoices regime coming into operation, unconscionable contracts could be appealed against, primarily under the range of state-based Unfair Contracts statutes. For instance, the NSW Contracts Review Act 1980 allows a Court to refuse to enforce an unfair contract; or alternatively, to refuse to enforce the unfair part of the contract; or as a further option, to amend the contract in order to bring it within the bounds of fairness. Such options are not available with respect to AWAs, by virtue of section 16(1)(d) of the Workplace Relations Act 1996, which declares to be invalid, any state law "providing for the variation or setting aside of rights and obligations arising under a contract of employment, or another arrangement for employment, that a court or tribunal finds is unfair".

At a Commonwealth level, the Trade Practices Act 1974 prohibits unconscionable conduct in business dealings (though not in the employer-employee relationship). The relevant provision states:

51AA Unconscionable conduct within the meaning of the unwritten law of the States and Territories

(1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

Two subsequent provisions then set out particular statutory requirements which make unconscionable conduct unlawful within the Commonwealth jurisdiction.

Hang on a minute.

Doesn't this mean that when a large business organisation negotiates a contract with a small business organisation, it is bound by law to act in a conscionable manner … but when that same large business negotiates with an individual person, it can be as unconscionable as it likes?

Well, yes. And this was rather the point which the NSW Industrial Relations Commission was trying to make.

Perhaps, given that the Government currently appears minded to reconsider the WorkChoices legislation, one change which might find its way into the legislation could be an equivalent to section 51AA of the Trade Practices Act 1974; a provision to make unconscionable conduct in AWA negotiations unlawful; and to make AWAs negotiated under such circumstances, unenforceable. Alternatively, a provision could be inserted allowing the Federal Court - or even the Fair Pay Commission - to repair such contracts in order to remove the effects of unconscionability from them.

The counterargument, of course, is that such a provision may well lead to increased litigation and increased uncertainty among the contracting parties. Initially, that seems to be a fair argument. But the experience of section 51AA of the Trade Practices Act tends to suggest that such concerns are unwarranted. After all, a contract is not unconscionable just because one negotiating party is at a disadvantage. Neither is it unconscionable just because the outcome favours one party more than another.

But if a work contract is negotiated, and the outcome is truly objectionable - so outrageous that it is almost insultingly contrary to our collective conscience as a society - then why would we let such a contract stand?