How to Protect Your Business From Unfair Contracts

There are laws in place in Australia to protect small businesses from unfair contract terms. The result of these laws are that small businesses are better protected, and there are now genuine consequences for any business that seeks to use unfair terms to gain the upper hand.

The Australian Competition and Consumer Commission (ACCC) has been heavily investigating unfair contract terms and widely recognised businesses, such as Uber, Ashley & Martin and Lendlease, have all been affected.

In the following article we will look at the types of contracts that are protected by this legislation.

Which Types Of Contracts Are Affected By The Legislation?

The latest unfair contract terms legislation is relevant to both ‘small business contracts’ and ‘standard form contracts’. Below we have prepared some bullet points to help you determine whether a contract is either of these types.

Small business contracts must meet the following criteria:

  • the contract is for the supply of goods or services, or the sale of land; and
  • at least one of the parties is a small business (being a business that employs fewer than 20 people, including regular casual employees); and
  • the upfront price payable under the contract does not exceed either:
    – $300,000; OR
    – if the contract has a duration of more than 12 months, $1,000,000.

Standard form contracts are defined by a disparity in negotiating power. One party offers the other party a ‘take it or leave it’ deal. Examples of this type of contract include membership contracts and vehicle rental agreements. Courts determine whether a contract is ‘standard form’ in the following ways:

  • if one of the parties has all or most of the bargaining power;
  • if the contract was prepared by one party before any discussion regarding the contract had taken place between the parties;
  • if the terms of the contract are generalised or take into account the specific characteristics of the parties.

In order for the new legislation to be applied, a contract must be both a small business contract and a standard form contract.

A hypothetical example might be if a 12 month contract was prepared by a larger company demanding a small business pay $1 million by the end of the contract. If this is unreasonable, a small business might be able to argue that the contract terms were inherently unfair.

What terms are considered ‘unfair’ in a contract?

If you are a business that likes to offer ‘tough love’ contracts you may wish to review your contracts to make sure there are no grounds for the ACCC to charge you for unfair contract terms. Some terms that may be considered unfair might be charging customers for services without providing those services, or increasing the price of services without informing the client.

Furthermore, if you feel that you are being victimised by an unfair contract based on the above, it is important to seek further advice.

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