Court rules against Employsure contract’s “penalty” clause

The NSW Supreme Court ruled that a clause in the contract between Employsure and a company, Zintix (Australia) Pty Ltd, amounted to a "penalty clause" designed to "coerce performance" of the terms of the contract.

The contract provided for three core services plus a "bolt-on" insurance product and for Zintix to pay $300 a month (amounting to $18,000 over five years) for Employsure's services. 

The contract expressly provided "no provision for early termination" and that "failure to adhere" to the monthly payment schedule "will result in the total balance outstanding becoming payable immediately in full".

The contract provided that, if Zintix stopped paying the instalments, and thereby breached the contract, it would face a penalty of paying out the entire balance of unpaid monies, being the sum of $18,000. 

When Zintix stopped making the monthly payments eight months into the five year contract and Employsure sought to enforce the contract in Court. Employsure submitted to the Court that it "was entitled to the money when the ink dried" on the contract and "it did not need to further 'earn' its fee".

The Court rejected Employsure's contention and ruled that a client of IR advisor Employsure was not required to pay out the balance of its $18,000, five-year contract.

The Court ruled that the relevant clause constituted an unenforceable "penalty" and also rejected any suggestion that the amount payable on Zintix's breach of the contract "was a genuine pre-estimate of losses and damage". Judgment was granted in favour of Zintix.

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

Disclaimer: This summary is not legal advice and for more information on the right to terminate a contract, call NECA Legal (WA) Pty Ltd on (08) 6241 6129 or email