Supreme court smacks down Employsure contract

Supreme court smacks down Employsure contract

By Jim Wilson on 27 June 2018 The NSW Supreme Court has ruled IR provider Employsure cannot enforce a contract that locked an employer into a five-year deal for employment services.
 
Employsure sued its customer, Italian food importer and supplier Zintix, after it attempted to quit the contract after eight months, owing $18,463.

Zintix had bought a bundle of workplace advisory services including an assessment of terms and conditions of employment; supply of continually updated employment documentation; and access to a 24/7 year-round advice line service along with insurance for defending workplace relations claims. 

Contract


Zintix was locked into a five-year unbreakable contract term for $18,000 plus GST, which would automatically renew on expiry (unless six months' written notice was given). Payment was to be made in 60 monthly payments of $300 plus GST.

Failure to stick to the payments, according to contract clause (c), would “result in the total balance outstanding becoming payable immediately in full.” 

The food importer entered into the contract on 25 March 2014 and made a number of payments but stopped paying in November 2014 (except for two further payments some months later). 

Employsure sued Zintix in late October 2015 for $18,463 claiming the food importer was in breach of contract. Employsure initially won its case in the NSW Local Court but Zintix appealed to the NSW Supreme Court. 

An unenforceable penalty


A key legal point in the case was whether or not clause “c” was a penalty clause. It is a long-standing principle of contract law that a penalty clause is void and cannot be enforced.

The court noted that, under the contract, Zintix would be required, immediately upon breach of clause (c), to face “a penalty of paying out the entire balance of unpaid monies”. It further noted that the clause operated regardless of whether the breach was substantial or trivial; whether it was early or late in the term of the contract; and that the plaintiff was unable to exit the contract.

“The purpose of the clause is plainly to coerce performance of the contract by the plaintiff,” the court said.

It then ruled that clause (c) is a penalty clause and is therefore unenforceable. It ruled in favour of Zintix, which means the importer will not have to pay the claimed monies, and ruled that Employsure would be ordered to pay its customer’s legal costs. 

Read the case


Zintix (Australia) Pty Ltd v Employsure Pty Ltd [2018] NSWSC 924 (19 June 2018)
 

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