What is the issue?
Small businesses are often subject to unfair contract terms in standard form contracts as they may not have the necessary resources, power or experience to negotiate the contract compared with larger businesses.
To address this issue, the Federal Government has introduced new legislation which will extend the unfair contract provisions which are currently in place for household consumers. This means that from 12 November 2016, unfair contract terms in standard form contracts provided to small business customers may now be considered void.
What is a 'small business contract'?
A contract is a 'small business contract' if the following criteria are met:
- At least one party is a business that employs less than 20 employees,
- The upfront contract price does not exceed $300,000, or $1 million if the duration is longer than 12 months.
The contract must be for the acquisition or supply of goods or services, or for the sale or grant of interest in a land.
This will apply to all standard form contracts entered into on or after 12 November 2016, as well as contract renewals or rollovers which occur after this date. Also, if an existing contract is amended or changed on or after 12 November 2016, the new law will apply to the amended contract.
Please note some exceptions do apply. For example, industry-specific laws which provide equivalent protections may make the unfair contract terms exempt from the small business protections. Certain insurance contracts are also excluded.
What is an 'unfair' contract term?
An 'unfair' contract term is one that would cause a significant imbalance in the parties' rights and obligations under the contract. For example:
- terms which allows one party (but not the other) to terminate the contract or vary its terms
- terms which favour one party and which are not reasonably necessary, and would cause detriment (whether financial or otherwise) to the other party if those terms were enforced
If a term of a contract is found to be void by a Court, the rest of the contract will continue in full force to the extent that it is possible to do so.
Be prepared!
- Consider undertaking a review of your current standard contract terms and delete or amend any terms which are likely to be considered unfair. It might even be worth having one contract for small businesses and another for larger businesses.
- Assess the contracts you currently have with small businesses (e.g. leases, franchise agreements, consultancy agreements). Any renewals or variations after 12 November 2016 are covered by the new laws.
- If you are a small business and have been given a standard form contract, be aware of your rights and the protections available to you.
How can Sharrock Pitman Legal help me?
We have helped many businesses with ensuring they comply with their contract obligations, and it would be our pleasure to assist you. We provide fixed prices and offer substantive free benefits to all customers who run a business. See here for full details.
Call Sharrock Pitman Legal today on 1300 250 506. Mitchell Zadow (Managing Principal and Accredited Specialist in Commercial Law) and our team would be pleased to help you.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
Liability limited by a scheme approved under Professional Standards Legislation.
Mitchell is the Managing Principal of our law practice.
He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.
