Legislative changes to the effect of indemnity clauses in service agreements
Contractual indemnities appear in many services agreements, including subcontracting, labour hire and wet plant hire agreements. Indemnity clauses move liability from one party to another by requiring one party to indemnify the other.
The usual type of indemnity arises where one party agrees to indemnify another party for all liability for a claim for personal injuries in the performance of a contract, regardless of who caused the injury. It can be very costly if a party has to fulfil the indemnity obligation.
Recent amendments to the Workers’ Compensation and Rehabilitation Act 2003 (Qld) mean that a contractual indemnity will be void in certain circumstances. The Workers’ Compensation and Rehabilitation (National Injury Insurance Scheme) Amendment Act 2016(Qld) was passed to reverse the effect of the Queensland Supreme Court decision of Byrne v People Resourcing (Qld) Pty Ltd QSC 269, but the effect goes further than was anticipated.
From 31 August 2016 onwards, an indemnity clause with respect to liability for personal injuries will be void if:
- a worker makes a common law claim against their employer;
- the employer had agreed to indemnify another party for legal liability where the employer would not otherwise have been liable; and
- WorkCover Queensland seeks contribution from that other party.
If an indemnity clause is void, the party wanting to rely on it cannot enforce it against WorkCover Queensland or the employer directly. Additionally, the amendments are partly retrospective in that they affect all claims where there has been no settlement or completed trial by 31 August 2016.
Because of the risk that an indemnity clause may be unenforceable, a business should check with its insurance broker that it has appropriate insurance cover for personal injury claims, including where the business is subject to indemnity provisions in any agreement.
In light of these changes, a business owner should seek legal advice if they are a party to an agreement with indemnity clauses or if they are considering entering into an agreement which includes indemnity clauses.