Did you know that……
Important changes to laws that affect the fairness of contracts entered into by small business are now in place?
Known as the Unfair Contract Terms legislation, this new Federal Government legislation came into effect on 12th November 2016 and protects small business from unfair terms in contracts.
The Unfair Contract Terms legislation affects all small business in Australia
The new law applies to a standard form contract entered into or renewed on or after 12th November 2016
Failure to update your Terms and Conditions of Trade to comply with this legislation means certain aspects of your contract could be deemed null and void and as such, unenforceable.
So, what is a ‘small business contract’?
A ‘small business contract’ is a contract where:
- at least one of the parties is a business employing fewer than 20 people (including casual employees employed on a regular and systematic basis); and
- the upfront price payable under the contract does not exceed $300,000 (or $1,000,000 if the contract term exceeds 12 months)
The definition of ‘Unfair”
A term may be declared unfair:
- if it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- it is not reasonably necessary to protect the advantaged party’s legitimate interests (it is presumed not to be); and
- it would cause detriment to a party if it were relied on.
At a Committee for Economic Development of Australia (CEDA) event several months ago the ACCC’s chairman, Mr Rod Simms, was quoted in relation to the Unfair Contract Terms legislation, stating “We are looking at some amazing clauses that clearly do small business great harm, and we’re looking to get those to court.”
So if you are a small business and you believe that the terms of your contract unfairly advantages the larger party, there are now steps you can take to seek redress. You will find more information here.
If you are a larger business you will need to make sure that contracts which you enter into are not unfair under the above definition. Note that all previously existing contracts which are renewable after 12 November 2016 must comply with the legislation.
Australia’s major banks are moving to change their loan contracts to ensure that they are fairer to small business.
With acknowledgement to EC Credit Control
