The ACCC has begun enforcing the new unfair contract terms, which have been extended to include around two million small businesses.
“Businesses should be aware that the ACCC is moving from its education phase to an enforcement approach where we will be targeting unfair contract terms,” says ACCC Deputy Chair Dr Michael Schaper.
“Small businesses sign an average of eight standard form contracts a year and from November 12 these contracts will be covered by a law preventing unfair terms in contracts that are offered on a ‘take-it or leave-it’ basis.”
The law applies to a standard form contract entered into or renewed on or after 12 November 2016 and covers 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.
According to the ACCC, standard form contracts provide little or no opportunity for the responding party to negotiate the terms, and the new law sets out examples of contract terms that may be unfair, including:
- terms that enable one party (but not another) to avoid or limit their obligations under the contract
- terms that enable one party (but not another) to terminate the contract
- terms that penalise one party (but not another) for breaching or terminating the contract
- terms that enable one party (but not another) to vary the terms of the contract.
The competition regulator reveals it has identified three potentially problematic terms that are widespread and likely to cause concern.
“Terms that give one party an unconstrained right to unilaterally vary key aspects of a contract, that unfairly seek to shift liability from the contract provider to the small business or that provide unnecessarily broad termination rights will almost always raise concerns about unfairness,” says Schaper. “Businesses that rely on these types of terms should be aware that they are leaving themselves open to action by the ACCC or another party.”
In addition, Schaper advises businesses to consider whether a contract term creates an imbalance of obligations between the parties, whether it is necessary to protect a legitimate business need, and whether it causes detriment to the other party.
“Businesses should ensure that potentially problematic terms are only as broad as reasonably necessary to protect their legitimate interests, as terms that grant rights beyond this are likely to be unfair,” he adds.
The Federal Small Business Minister, Michael McCormack, says the changes ensure small businesses have access to a level playing field to compete, invest and grow.
“The new protections will ensure small businesses get a fair deal when entering into standard form contracts with larger businesses. For a long time small businesses entering into contracts with larger businesses have had no choice but to accept all the terms of a standard form contract that they are given,” McCormack notes.
“During the past 12 months, the ACCC has worked closely with businesses to help them comply with the new law, and the Government is pleased that many large businesses have reviewed their standard form contracts ahead of the changes commencing.”