Are you up to date on unfair contracts legislation for small business?

New Australian Consumer Law came into effect from 12 November 2016 that makes unfair contract terms forced upon small businesses by larger organisations void. What it means is that if a small business is handed a standard form contract from a large organisation with clauses that are unfair to them and they are given no opportunity to negotiate them, then these clauses may be unenforceable. This legislation is aimed at providing small businesses protection against standard “take it or leave it” contracts when the size and negotiating power of the two companies is out of balance.

The criteria as detailed by the ACCC for the types of contracts that the legislation is applicable to are:

  1. The contract must be meet the following conditions to be considered:
  • it is for the supply of goods or services or the sale or grant of an interest in land
  • at least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis)
  • the upfront price payable under the contract is no more than $300 000 or $1 million if the contract is for more than 12 months.
  1. The contract is entered into or varied on or after 12 November 2016.
  2. The contract is offered to the small business as a “take it or leave it” contract with no negotiation of contract terms.

Unfair clauses may include:

  • 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.

If a contract meets the above criteria, then any unfair clauses within it, as determined by a court or tribunal, will be void.

Unfortunately, many “take it or leave it” contracts with unfair clauses are still being commonly offered.

For further information:

https://www.accc.gov.au/system/files/Unfair%20contract%20terms%20-%20A%20guide%20for%20businesses%20and%20legal%20practitioners.pdf

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Author: Simon Walker

Simon established Connley Walker Pty Ltd in 1996. He is a Fellow of Engineers Australia, a Registered Building Practitioner, a Member of the Australian Institute of Project Management, a Registered International Professional Engineer, a Registered APEC Engineer, and an SCEC Endorsed Security Zone Consultant. He is the author of the books Operational risk management: Controlling opportunities and threats, 2001 ISBN 0957907400 and Hospital and Health Care Security in Australia, 2009 ISBN 978-0-9579074-1-6.