As someone in the fashion and beauty industry, you will likely encounter contracts in your business. Clear and well-drafted contracts are like well-curated outfits—they ensure smooth functioning throughout your days. Additionally, they minimise many kinds of liability. As a business owner, it is essential to manage contracts from a practical point of view. This article explains the key contractual knowledge you need to run a thriving and secure fashion and beauty business.
What is a Contract?
A contract is a legally binding agreement that outlines specific terms, obligations and rights. Except for in particular situations, a contract can be either written or verbal. The purpose of a contract is to ensure that people do what they say. For example, if you signed an agreement to pay someone $2000 per month, you must pay unless the contract or the law says otherwise.
What happens if someone fails to perform their obligations? A court may award compensation for losses or order the breaching party to take specific actions.
What Makes a Valid Contract?
The law requires a contract to meet specific prerequisites to exist validly. These elements are in the table below.
| Element | Explanation |
| Agreement between the parties | An agreement comes about through an offer and then subsequent acceptance. Offers should be clear, specific and unequivocal to avoid misunderstandings. |
| Intention to create legal relations | The parties must want to enter into a legally binding contract. The surrounding circumstances can often reveal this. |
| Exchange of value (consideration) | You exchange something of value. For example, you might agree to pay money in return for clothes. |
| Capacity to contract | In some situations, young people under the age of 18 or mentally impaired persons are deemed incapable of consenting to a contract. |
| Lawful purpose | There must be a lawful purpose to the contract. For example, you cannot contract to sell illegal drugs. |
Types of Contracts in Fashion and Beauty
Two types of written contracts are common in the fashion and beauty industry.
| Example | Explanation |
| Manufacturing agreements between a designer and a manufacturer | Manufacturing agreements specify product quantity, shipment, payment, delivery dates, specifications and intellectual property rights. |
| Consignment agreements between a designer and a retailer | Consignment agreements allow a retailer to sell a designer’s products in their marketplace. |
There may also be implied contracts that arise from verbal interactions. For example, if someone walks into your shop and asks for a manicure, your acceptance likely gives rise to a contract. You take on responsibility for providing the service a customer promises to pay for and performing with due care and skill.
Additionally, you will have to enter employment contracts with your workers.
Practical Ideas to Manage Contracts
Without an understanding of contracts and how to manage them, there is a good chance that your business will suffer financial loss. However, the good news is that you can take several practical steps to meet your obligations.
- Keep copies of your contracts: A copy of the agreement is essential in a dispute between you and another party. A systematic filing system to store contracts and other vital legal documents will ensure you can easily find them.
- Review contracts carefully: Before signing a contract, particularly for new work, ensure you can perform what it requires. Check for unfair contract terms that disproportionately favour one party. This is because the Australian Consumer Law protects consumers and small businesses in these situations.
- Draft clear and concise terms: Address critical aspects such as identifying the contracting parties (for example, using Australian Business Numbers), payment terms, delivery schedules, quality standards and dispute resolution mechanisms clearly and concisely. Include sufficient detail to avoid confusion about each party’s obligations.
- Consider a ‘force majeure’ clause: A force majeure clause excuses the performance of a contract due to uncontrollable circumstances such as natural disasters and pandemics. For example, if your shop floods due to heavy rain. By including such a clause, you may be able to mitigate losses if you cannot perform your obligations.
- Consider an exclusion clause: Likewise, it is essential to include an exclusion clause that limits your liability in the event of non-performance. This clause could specify the upper range of compensation that is payable. Note that because of federal, state and territory laws that can override contracts, an exclusion clause will never be 100% effective.
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Key Takeaways
As a fashion and beauty business, you will undoubtedly deal with contracts daily. Protecting yourself involves understanding the essential elements of a contract and taking practical steps to mitigate your legal risk. A contract generally becomes valid when it satisfies prerequisites. These can include an exchange of value between parties and that there is an intention to create legal relations. Some of the practical measures you can take to minimise your chances of financial loss are:
- keep copies of your contracts;
- review contracts carefully; and
- draft clear and concise terms, and consider including clauses that limit your liability.
If you would like assistance with contracts for the fashion and beauty sector, our experienced commercial lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
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