Just like consumers, small businesses are vulnerable to unfair terms in standard form contracts imposed on them by other, often larger, organisations. In some cases, small businesses cannot afford legal representation or do not understand what they are signing. In other cases, they are unable to negotiate amendments to a contract because they lack the leverage that is necessary to cause the other party to make any amendments - these types of contracts are often known as 'take it or leave it' contracts - and if you run a small business you will probably be familiar with them. 

In an attempt to level out the playing field the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 imposes new obligations on organisations dealing with small businesses. The new laws, which will apply to standard form small business contracts entered into (or varied) on or after 12 November 2016:

  • Extend the consumer unfair contract term protections found in the Australian Consumer Law to small business contracts;
  • Will allow unfair contract terms to be declared void and for the contract to continue to bind the parties if it can operate without the unfair term.
  • Allow the Courts, where contract terms are declared void, to order in certain circumstances that monies paid under the unfair contract be refunded.

A contract is a small business contract if, at the time it is entered into, at least one party to the contract is a business that employs fewer than 20 persons, and the upfront price under the contract does not exceed either $300,000, or $1,000,000 if its duration is more than 12 months.

Parliament hopes that the new laws will reduce the incentive to include and enforce unfair terms in small business contracts, and that in turn this will provide a more efficient allocation or risk in contracts and support small business' confidence when agreeing to contracts. 

All businesses that offer standard form contracts to small businesses need to review and amend their contracts to ensure they are compliant with the new laws. 

The new unfair contract terms place an additional layer of regulatory complexity on organisations. Businesses need to undertake periodic review of their legal contracts to ensure they continue to work within the context of applicable regulatory requirements.

At Arnotts Technology Lawyers, we regularly draft, negotiate and advise clients on their legal obligations under the Australian Consumer Law. Please contact us if you require assistance with your contract drafting, negotiation or regulatory requirements.