Labor commits to ban unfair contract terms

Under the rules as they stand, the Australian Competition and Consumer Commission (ACCC) can’t issue civil pecuniary penalties against businesses imposing unfair contract terms, resulting in some small businesses remaining unprotected by the current rules.

The legislation proposes reforms to the Australian Consumer Law and the Australian Securities and Investments Commission (ASIC) Act 2001, looking to protect consumers and small businesses.

The amendments would introduce civil penalty provisions outlawing the use of, and reliance on, unfair terms in standard form contracts. This would enable a regulator to seek a civil penalty from a court.

The law would also widen the scope of protection by increasing the small-business eligibility threshold for the protections from less than 20 employees to fewer than 100 employees.

An annual turnover threshold of less than $10 million was an alternative threshold for eligibility.

Currently, if a term in a contract signed by a small business is found to be unfair by a court or tribunal, the clause will be void and the small business will no longer be required to comply with it.

But there are no rules or penalties against including unfair terms in the first place and the steps to have the term voided can be a “drawn out and costly process”.

Further, small businesses and consumers often lack the resources and bargaining power to effectively review and negotiate terms in standard form contracts.

The changes would improve the “long-term resilience of Australia’s small businesses” and help them bounce back following significant challenges in recent years, minister for small business Julie Collins said.

“These reforms are a critical part of this agenda,” Ms Collins said.

Assistant minister for competition, charities and treasury Andrew Leigh added that too many hard-working Australians are struggling with late payments, staff shortages and complex regulation, all while worrying about being “pushed around” by big clients.

“We will safeguard small business and contractors from exploitation,” Mr Leigh said.

An area ‘ripe’ for change

The move was welcomed by the Australian Small Business and Family Enterprise Ombudsman Bruce Billson, who said addressing these issues will aid in “rebalancing” relationships between small and large enterprises.

“We see in many contracts we review, examples of unfair terms. This is an area ripe for change,” Mr Billson said.

“Power imbalances between small business and large enterprises are exacerbated by unfair business practices and unfair contract terms.

“I encourage large enterprises doing business with smaller firms to be a kindly customer – patient and understanding, with good and generous intent, especially around contract terms.”

WA applauds the federal government

The McGowan government also welcomed the proposed legislation to outlaw the use of unfair terms in standard contracts, relating it to the state government’s moves to protect small businesses.

Small business minister Don Punch said small businesses were at risk of being subject to unfair terms, “particularly when accepting standard form contracts” from big business customers.

“In Western Australia, we have been enacting better protections for small business for many years, reflecting the importance of this sector to our economy and community,” Mr Punch said.

In 2020, the McGowan government passed the Small Business Development Corporation Amendment Act 2020 providing the Small Business Commissioner rights to compel parties to provide documents relating to investigations of unfair practice.

From 1 August 2022, the new Building and Construction Industry (Security of Payment) Act 2021 will apply to any new construction contracts entered into, to help ensure construction subcontractors are paid on time for their work.

“We welcome the introduction of new Federal legislation which will enhance state protections and further level the playing field for WA’s 220,000 small businesses,” Mr Punch said.

[Related: Government unveils draft reforms for unfair contract terms]