New laws aimed at protecting small businesses from unfair contracts come into effect this Saturday, 12 November 2016. A report released today has found many businesses will need to change their practices or risk falling foul of the provisions.
The ACCC will begin enforcing the new law this week, when consumer protections against unfair contract terms are extended to provide protection for up to 2 million Australian small businesses – including many farm businesses.
“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,” ACCC Deputy Chair Dr Michael Schaper said.
The ACCC has identified three types of problematic terms as being 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. 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,” Dr Schaper said.
Businesses should consider whether a contract term creates an imbalance of obligations between the parties
ACCC Deputy Chair Dr Michael Schaper
In the agriculture arena, the Report specifically highlights concerns with contracts which allow unilateral variation of terms (such as price or product requirements), or unrestricted access to a farmers’ property.
“Businesses should 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.”
Previous research has shown almost two thirds of small businesses claim to have experienced unfairness in contract terms and conditions they have signed, with almost half report experiencing some harm as a result.
What agreements will be covered by these new rules?
The law will apply to a standard form contract entered into or renewed on or after 12 November 2016. If a contract is varied on or after 12 November 2016, the law will apply to the varied terms.
Contracts covered include those 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.
Standard form contracts provide little or no opportunity for the responding party to negotiate the terms – they are offered on a ‘take it or leave it’ basis.
The 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.
Only a court or tribunal (not the ACCC) can decide that a term is unfair. However, if a court or tribunal finds that a term is ‘unfair’, the term will be void – this means it is not binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.
To view the full report, click here [PDF].