Small business protection from unfair terms in contracts


Posted By on 25/10/15 at 1:59 PM

Small business is in for a helping hand with the Federal Government proposing to protect small businesses from unfair terms in contracts. The Government has developed an Exposure Draft that would amend the Competition and Consumer Act 2010, under which unfair terms protection has traditionally been limited to consumers alone.

What are unfair terms?

An unfair term is one that causes a significant imbalance in the parties’ rights and obligations, would cause detriment to a party if it were to be relied on and which is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term.

In other words, it covers a term that allows one party to walk all-over another, without a legitimate interest in doing so.

Why are small businesses being protected?

It is an unfortunate reality that many small businesses have little power when negotiating with larger, more powerful entities. Small business is regularly faced with ‘take it or leave it’ offers that contain terms skewed significantly in their disfavour. Such situations often arise where small businesses are presented with standard form contracts. The proposed legislation would force larger entities to ensure that their standard form agreements are not unfair on small businesses that they contract with.

Who’s covered?

Businesses with less than 20 employees will be classified as small businesses and will receive protection from unfair contract terms.

However, if a small business enters into a contract where the upfront price is greater than $100,000, or greater than $250,000 if the contract is to last longer than one year, then the small business will not receive protection from unfair terms.

Ordinarily, small business contracts entered into prior to the passing of the introduction of this new legislation will not be protected from unfair terms. The unfair terms legislation will only apply to:

  1. Agreements entered into after the introduction of the new law;
  2. Clauses in existing contracts that are varied after the introduction of the new law; OR
  3. Contracts renewed after the introduction of the new law.

What does this all mean for me? What should we do?

The idea of unfair terms protection is new, unexplored territory that is unfamiliar to most business people. Further, no one wants to be investigated by the ACCC, nor do they want parts of their contracts rendered void! Therefore it is vital that businesses review their standard form contracts to ensure that are balanced and fair for both contracting parties.

If you’ve any questions or concerns regarding consumer law or unfair terms, give us a call on (03) 9663 9877. We are more than happy to help you navigate these new, unchartered waters.

Amelia Edwards

Senior Associate

Since joining us in 2014, Amelia has developed broad commercial experience and interests working across the firm’s practice areas and on secondment. She holds a Bachelor of Arts (Anthropology)... Read More