Decreasing staff discount on school fees found to be a breach of Australian Consumer Law

In brief - Decision in Newham v The Peninsula School [2021] FedCFamC2G 273 highlights critical areas of compliance for schools relating to fee discounts across enrolment contracts, employment contracts and consumer law

In the recent decision of Newham v The Peninsula School, the Federal Circuit Court held that a non-government school had breached Australian Consumer Law by unilaterally decreasing the staff discount on school fees in the context of the COVID-19 pandemic in April 2020. 

Teacher challenges reduction in staff school fee discount introduced by school in response to pandemic

Traditionally, some independent and Catholic schools have provided staff discounts for their children's school fees, some discounts being quite generous. This was the case for Ms Newham, a commerce teacher and Head of House at the school.

Ms Newham had been working at the school since November 2011. Her contract of employment stated that as a permanent, full time staff member, she would receive a tuition fee discount for her children attending at the school. Ms Newham has two daughters. Prior to their commencement at the school it was agreed that she would receive a 75% and 70% discount on their school fees respectively. The discounts were slightly higher than the usual discounts provided to staff and represented a total discount of $307,353 over the tenure of the children's secondary schooling. 

In April 2020, following the outbreak of COVID-19, staff at the school were informed that due to the unprecedented circumstances, the staff school fee discount would be reduced to 50%. For Ms Newham, this had a significant and material impact in that she could no longer afford to send her children to the school. 

Ms Newham challenged the decrease in the discount offered to her in 2011, which resulted in a significant increase in tuition fees payable by her. She filed proceedings arguing that the fee increase that she was required to pay was in breach of the enrolment agreement which she signed with respect to her daughters, and was in breach of her contract of employment and Australian Consumer Law.

Terms of the enrolment agreement found to be unfair, school's conduct found to be unconscionable

The school relied on terms of the enrolment agreement, which purported to give the school the right to unilaterally vary the fee arrangements under an enrolment agreement. However, these terms were found to be unfair and therefore void, pursuant to Australian Consumer Law (the Act) for the following reasons:

• The terms in the enrolment agreement that allowed for unilateral amendment caused significant imbalance in the parties' rights and obligations arising under the contract (section 24 of the Act)

• Although the school was concerned about the possible financial impact of COVID-19, it was found that the fee changes were not reasonably necessary in order to protect the legitimate interests of the school because these interests could have been protected in other ways (eg, increasing fees for incoming students) (see section 24(b) of the Act), and

• Changing the terms of the enrolment agreement had caused significant financial and personal detriment to Ms Newham (see section 24(c) of the Act).

The school's conduct in seeking to increase the fees in April 2020 was also found to be unconscionable conduct in breach of section 21(1) of the Act. 

What should independent schools do in light of decision in Newham v The Peninsula School?

While many independent schools offer staff tuition fee discounts should their children attend at the school, blanket terms giving schools the power to unilaterally amend enrolment agreements may well be successfully challenged. 

We recommend that independent schools review their current enrolment agreements and staff employment contracts to ensure that they will be able to withstand scrutiny if challenged. 

We highlight that the reasoning in this decision may well be relevant to non-monetary terms and penalty provisions in enrolment agreements, which could be challenged as being 'unfair' pursuant to the definition in the Act.