On 24 June 2015, the Federal Minister for Small Business, the Hon Bruce Billson MP, introduced the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 (Bill) into Parliament which will extend the protection against unfair contract terms to standard form small business contracts.

The Bill was introduced following the conclusion of a public consultation process on the exposure draft legislation between 28 April 2015 and 12 May 2015, whereby interested stakeholders were provided with an opportunity to comment on the draft Bill. K&L Gates' Legal Insight titled 'Unfair Contract Terms Laws – Soon to Apply to Small Business', dated 6 May 2015, commented on the draft Bill.

The Bill, if passed, will take effect six months after it receives Royal Assent. In the meantime, the Australian Competition and Consumer Commission (ACCC) has been allocated AUD1.4 million in funding to provide guidance material and to assist with the compliance with this impending new law.

Extending Unfair Contract Term Protections to Small Business

  • Minister Billson has introduced legislation which will extend the consumer protection against unfair contract terms to standard form small business contracts by amending the Australian Consumer Law in the Competition and Consumer Act 2010 and the Australian Securities and Investments Commission Act 2001.
  • Small businesses will be able to seek to have declared void unfair contract terms of the kind often found in standard form 'take it or leave it' contracts.
  • Clauses giving onerous rights to one party and not the other are likely to be unfair. A unilateral right to terminate on short notice in a long term relationship or a unilateral right to increase the purchase price are also at risk of being invalid.
  • The way in which the standard form contract is drafted will have an effect on the fairness of its terms. Unclear language is likely to reflect negatively on the fairness of terms. Vast conditions set out on the internet or wording in tiny print may run into difficulty.

Key Provisions of the Bill

In his Second Reading speech, Minister Billson highlighted the following key provisions of the Bill.

  • A contract will be a small business contract if at least one party has fewer than 20 employees and the upfront price payable under the contract does not exceed AUD100,000 for a one-off contract or AUD250,000 for a multi-year (ie more than 12 months) contract (transaction value threshold).
  • To determine whether a business has fewer than 20 employees, a headcount approach will be adopted (excluding casual employees not employed on a regular or systemic basis) to simplify the application of the proposed new law.
  • The transaction value threshold was selected as it has been determined that it is reasonable to expect all businesses to conduct their own due diligence and seek advice when engaging in large contracts.
  • The Bill also allows exemptions to certain industry-specific laws or regulations which provide protections for small businesses and which are equivalent to the unfair contract terms regime.

Commencement

  • The legislation will take effect six months after the Governor-General grants assent. The government expects this to be in the first half of 2016. It remains to be seen how the Senate will deal with the legislation and when the legislation will pass, if that is its fate.
  • The Bill is likely to gain enough support to pass in the Senate. For the time being, businesses should anticipate its commencement in early 2016.
  • Businesses that have standard form contracts which may fit the 'small business contract' definition should make sure the contract is clearly drafted and does not contain any unfair terms.
  • Guidance will be available from the ACCC. Peak industry bodies will also provide assistance to their members.

What Should you do?

Businesses should be aware that with the election promise to protect small business and government funding given to the ACCC, the ACCC will actively monitor compliance once the legislation comes into effect.

Accordingly, businesses who deal with small businesses should ensure they start reviewing their standard form business contracts and put in place compliance procedures particularly for future contracts or contracts approaching renewal after the legislation commencement.