By Kirsty Machon
New laws around contracts mean small businesses will soon have additional legal protection from potentially unfair contract terms. The legislation was passed in November but will apply to all standard contracts with a commencement date after 12 November 2016.
In the interim, the deputy chairman of the Australian Competition and Consumer Commission, Dr Michael Schaper, is encouraging small business owners that have been approached to enter into new contracts to be mindful of their legal rights, and consider a 12-month contract that is able to be renewed when the strengthened laws take effect at the end of next year.
The laws will apply to goods and services and the purchase of property or land. Aspects of franchise agreements also fall under the legislation. At least one party to the contract must be a small business employing fewer than 20 people in total.
Dr Schaper describes the new laws as ‘significant’ and says they will offer important protections for small businesses.
They were developed in response to concerns in the business community about contracts with unfair terms putting small businesses under significant financial pressure.
Dr Schaper says it was common to find ‘lopsided’ contracts where one party but not the other is able to unilaterally change the price for a service or good, or where all liability in the contract is unreasonably borne by one party.
He says small businesses can be at a particular disadvantage in relation to larger suppliers, with the contract sometimes leaving no room for negotiation, or when a party wants to leave a contract, including punitive measures that are not reasonably necessary to protect the interests of the business.
Many of the day to day business activities of optometry practices will fall under the scope of the new laws, including franchise agreements, equipment leasing, telecommunications services, and the hiring of independent contractors such as IT consultants. The laws will also be applicable to some contracts for the provision of optometry services.
The new laws will mean that a contract may be ruled unfair if the terms for both parties are not the same. For example, a contract allowing only one party to the contract to unilaterally vary that agreement without notice or consultation may be potentially unfair.
An example of the kind of contract that could be unfair would be one in which an internet service provider for a business reserves the right to vary without notice the cost of a service or reduce the amount of data that can be used, but can penalise the business financially if it wishes to terminate the contract on the basis of this change.
Another example might be a blanket ‘no refunds on cancellation’ policy, where a deposit or part payment is automatically retained if a business cancels an order, regardless of the reason.
Such a policy could unfairly penalise a business for circumstances where the supplier of a good or service has not met its obligations, for example, if an order was cancelled because goods were not provided by an agreed date.
Potentially unfair franchise agreements could include those that would allow the franchisor to terminate a franchise arrangement without a cause, or allow a franchisor to unilaterally change the terms of the initial contract.
A contract will be able to be determined unfair only by a court or a tribunal. The effect of this ruling would be that the unfair term is considered void, and parties to the contract are not bound to it.
More information about the laws, including case examples, can be found on the website of the ACCC, or by calling 1300 302 0211300 302 021.