Kelly O'Dwyer, Minister for Small Business, has secured the passage of the unfair contracts legislation. Photo: Ben Rushton
The Australian Competition and Consumer Commission says businesses need to closely review contracts in light of new laws offering small businesses protection against unfair contracts which were passed last week.
The laws take effect on November 12, 2016, following a 12-month transition period, and supplement the existing law on unfair contract terms for consumers.
Ask yourself whether or not you have the capacity to wait until November next year or can you sign a shorter term contract?
Dr Michael Schaper
They apply to standard form contracts between businesses where one of the businesses employs less than 20 people and the contract is worth up to $300,000 in a single year or $1 million if the contract runs for more than a year, and will be enforced by the ACCC, Australian Securities and Investments Commission and state and territory offices of fair trading.
Contract terms to look out for
ACCC deputy chairman Dr Michael Schaper says the following contractual terms are likely to be caught by the legislation:
- enabling one party (but not another) to avoid or limit their obligations under the contract;
- enabling one party (but not another) to terminate the contract;
- penalising one party (but not another) for breaching or terminating the contract; and
- enabling one party (but not another) to vary the terms of the contract.
"They are the sorts of areas that we think are going to be potentially difficult areas," he says.
"The industries that we think there will be a particular focus are advertising contracts, telcos, small business franchising contracts, commercial leases and potentially independent contracting arrangements."
Schaper says there are "special issues" to consider in relation to franchises.
"It's obviously the upfront agreement as the standard contract," he says. "Our take on this is that if the operations manual is explicitly part of the contract we will look at that as well. Even if you have an industry code the unfair contracts provisions apply."
Delay entering into contracts
Schaper says small businesses should consider delaying entering into contracts until the transition period is over.
"Ask yourself whether or not you have the capacity to wait until November next year or can you sign a shorter term contract?" he says. "Can you delay it or make it a periodic contract? Can you just renew it after November next year in which case it will be be caught."
But Schaper admits larger businesses are likely to want to rush through contracts to avoid the legislation.
"Conversely I can imagine many large businesses saying you need to sign now," he says.
Enforcing the legislation
Schaper says small businesses should bear in mind it is only the unfair part of a contract that will potentially be struck out, the rest of the contract remains.
"You can't say 'great I can get out of a whole contract', this is not going to be a panacea," he says. "You have to satisfy a judge as to what is unfair, it's not just 'I'm unhappy with it', it is a stricter legal test."
He says the ACCC has not received many inquiries yet but once the watchdog starts enforcing the legislation this is likely to change.
"Once the new law comes in and we start winning a few court cases you will see a whole lot of other ones making sure they comply," he says.
But Schaper says the legislation will not result in a "lawyers' picnic".
"Every time a new amendment is made to the Competition and Consumer act, especially when it gives small business more rights, this claim comes up," he says.
"It is really fairly and squarely aimed at those people who push the boundaries of hard bargaining and push competition well beyond the accepted limits. Part of our job to help avoid a lawyers' picnic is to help explain it in plain language so we need to educate people."
$1.4 million for transition
Minister for Small Business Kelly O'Dwyer, says the government is giving the ACCC $1.4 million to help businesses through the transition period.
"The Small Business and Unfair Contract Terms Bill will enable Australia's 2 million small businesses to have more time and more resources to invest in their business' success, instead of navigating a confusing maze of standard form contract terms," she says.
"The Coalition government wants to ensure small businesses can grow and succeed as they contribute to the economy and create local jobs."
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