Important changes to small business contracts – ensuring compliance with the Unfair Contract Terms legislation
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 businesses from unfair terms in contracts.
- The Unfair Contract terms legislation affects all small businesses 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.”
The key to avoid ending up in court is to ensure your current Terms and Conditions of Trade remain up to date and comply with this important new legislation.