On 12 November 2016, small businesses were the winners from the legislative changes to unfair contracts. A court or tribunal will void an unfair term in a standard form contract, and the small business no longer needs to comply with the clause. Telecommunications providers typically limit a consumers’ and business’ rights to cancel contracts and levy high penalties for non-compliance. Such terms will now likely fall foul of the unfair contracts law. Below, we explore unfair telecommunication contracts in more detail.
The Australian Consumer Law and Unfair Contract Terms
The Competition and Consumer Act 2010 (Cth) contains the Australian Consumer Law (ACL) which provides significant protections to consumers by making unfair contract terms in standard form contracts unenforceable.
Factors which can suggest a contract is a standard form contract include:
- One party has little or no opportunity to negotiate the contract’s terms (‘take it or leave it’); and
- The contract is prepared without discussion between the parties.
For example, when you visit your local mobile phone dealer to buy a new phone, you can pick either a $39/month or $49/month contract – that is the extent of your choice. You can’t negotiate whether you pay on the 1st of the month or the 14th, the length of the contract, how many texts the plan includes, etc. These factors make the telecommunication contracts standard form.
Unfair terms are where only one party can avoid or limit performance under the contract. For example, a term where only one party can terminate or vary the contract, or where one party is penalised for conduct but not the other. These examples are both characterised by an imbalance in the rights each party holds.
Australian Competition and Consumer Commission (ACCC) – Industry Review Outcomes
The ACCC found that telecommunications providers had many terms in the standard form contracts which were ‘unfair’ to consumers. The recent changes now extend the law to small businesses.
Changing the Contract Without Consent
Six out of eleven telecommunications providers had contracts which allowed the provider to alter the contract without the consumer’s consent. Under recent changes, this type of term would be unenforceable against a small business.
Example: TPG’s contract allowed it to change the subscription fees for a service, without providing notice. The clause said:
You must pay all subscription fees applicable to the plan for which you have registered. You understand that all fees and charges may be altered from time to time by us without notice.
Suspension or Termination of the Services
Four of eleven telecommunications providers had contracts which allowed them to suspend or terminate their services, without notifying the consumer. TPG was a key offender again and had a clause which stated:
We may at any time, without notice and at our absolute discretion, suspend or disconnect your access to part or all of the service.
You Can’t Rely on a Verbal Representation
Four out of 11 telecommunications providers included terms in their contracts which expressly prohibited consumers from being able to depend on the verbal representations (statements) their sales representatives made. These terms were problematic given that many consumers rely on what sales representatives say, given the length and complexity of the standard telecommunications contract. Under the ACL, telecommunications providers would be unable to include a clause which meant that a consumer or small business could not rely on what a sales representative told them about their mobile plan.
What Does This Mean for Small Businesses?
The changes mean that if you’re a small business and you enter into a standard form contract which contains an unfair contract term, the unfair contract term will not be enforceable against you.
What is a Small Business?
The unfair contracts law will only protect you if you fall within the definition of a small business. That is, the business must have less than 20 employees, including casual employees.
For the ACL to kick in, the contract must also be for the supply of goods and services. The upfront price payable cannot be more than $300,000. If the contract is for longer than a year, than the upfront price payable cannot be more than $1m.
What this means is that the internet provider cannot include a term which the ACL would deem unfair in the following circumstances:
- If you are a business with under 20 employees and;
- You want to enter into, for example, an internet contract for over 12 months and;
- The contract is worth less than $300k.
An unfair contract term is one which gives one party significant bargaining power, leaving the other side with relatively little. Since 2010, consumers have enjoyed protection from these unfair telecommunication contracts under the ACL. From 12 November 2016, the ACL will now also protect small businesses from unfair contract terms. If you have any questions or need assistance updating your contracts to ensure they comply with the new changes, get in touch with our consumer lawyers on 1300 544 755.