LegalVision Update: Unfair Contract Terms and Small Businesses

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Table of Contents

• Which Contracts are Affected?
• What is a Standard Form Contract?
• Examples of Unfair Contract Terms
• Why the Change?
• How Can Your Business Ensure Compliance?
• Key Takeaways

Parliament recently passed a bill increasing the protection available to consumers and small businesses. The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 (Cth) amends both the Australian Consumer Law (ACL) and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act). It extends unfair contract term protections to small businesses.

These changes prohibit unfair contract terms in standard form contracts, which is good news for consumers and small businesses. In our update, we will set out which contracts are affected, examples of unfair contracts and steps your business can take to ensure compliance.

Which Contracts are Affected?

Broadly, these will affect any standard form contracts entered into on, or after, 12 November 2016. The changes will cover contracts parties enter into if, at the time, at least one party to the contract is a business that employs fewer than 20 people, and either: 

(i) the upfront price payable under the contract is not more than $300,000; or

(ii) the contract’s duration is not more than 12 months and the upfront price payable under the contract doesn’t exceed $1 million.

What is a Standard Form Contract?

A standard form contract is one that Telstra or Optus may offer, for example, when you enter into a phone plan. It is a contract prepared by one party, where the other side to the contract has little or no ability to negotiate the terms of the contract. It is a “take it or leave it” type situation.

Examples of Unfair Contract Terms

Examples of unfair contract terms include: 

• Terms where one party can avoid/limit their obligations, but does not allow the other party to do this. 
• Terms allowing one party to terminate the contract but not the other. 
• Terms penalising one party for terminating or violating the contract, but not the other.

Why the Change?

The impetus for amending the Competition and Consumer Act 2010 (Cth) is promoting fairness in standard form contracts. Small businesses and consumers should have confidence that in dealing with other businesses, the contract offered is fair and reasonable. 

How Can Your Business Ensure Compliance?

In the transitional 12 month period, it is prudent for businesses to ensure compliance with the Bill’s provisions by:

• Reviewing contracts possibly used in transactions involving businesses with fewer than 20 employees;
• Considering creating a separate set of contracts for big and small businesses; and
• Considering asking the other party how many people it employs.

Key Takeaways

In summary, consumers and businesses can benefit from an extra layer of protection, courtesy of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth). The amendments prohibit unfair contract terms, in particular, standard form contracts. Consequently, instilling confidence in consumers that businesses will not offer them contracts containing unfair terms.

If you have any questions about these amendments or are unsure whether they will apply to you and your business, please get in touch on 1300 544 755. LegalVision’s experienced consumer lawyers would be delighted to assist you.