The Australian Competition and Consumer Commission (ACCC) has taken action against two companies in a bid to protect small Australian businesses from unfair contracts.

One of Australia’s largest, privately owned waste management companies is the first to be taken to task by the ACCC over alleged unfair contract terms with small businesses since changes to the Australian Consumer Law (ACL) came into effect in November 2016.

Providing a range of recycling and waste collection services throughout Australia, JJ Richards & Sons (JJ Richards) has an annual revenue stream of around $680m.

The ACCC alleges that up until April this year, JJ Richards’ standard form contract with small businesses included terms that caused damage to those businesses. These terms allow JJ Richards to:

  • unilaterally increase its prices
  • remove any liability on the part of JJ Richards where its performance has been “prevented or hindered in any way”
  • exercise an exclusive right to remove waste from a customer’s premises
  • suspend its service but continue to charge the customer if payment is not made after seven days and
  • prevent customers from terminating their contracts if they have payments outstanding.

We await the outcome of the proceedings. If the ACCC is successful, JJ Richards may be prevented from enforcing these unfair provisions against existing customers. As the legislation currently stands, there are no penalties in the form of damages for breach.

The ACCC has also commenced proceeding against Servcorp, suppliers of office space and virtual office services, for unfair contract provisions with small businesses. It is claimed that the unfair contract terms include terms that allow Servcorp to:

  • unilaterally increase the contract price
  • unilaterally terminate the contract and to impose penalty-type consequences on the customer
  • limit its liability and impose unreasonable liability on the other party and
  • acquire the other party’s property without any notice.

The ACCC intends to prevent Servcorp from relying on those terms or entering future contracts with small businesses that contain them.

What does this mean for your business?

If your business maintains a relationship with a small business in the manner contemplated above, you should consider reviewing any agreements to amend or remove terms which may be deemed “unfair”.

Our previous article details the changes and associated implications of extending the ACL to cover small businesses.

A company will breach these provisions if its standard form contract contains an unfair term and binds a party which:

  • employs fewer than 20 employees and
  • receives an upfront contract price no greater than $300,000 for less than a year or no greater than $1,000,000 for more than a year1.

A term is more likely to be unfair it is causes imbalance between the parties, is not necessary to protect the interests of the party seeking to include it and would cause detriment to the other party if relied on2.

These ACL provisions apply to new small business contracts, pre-existing small business contracts that are renewed and any terms of pre-existing contracts that are varied.

Unfair terms include those that allow one party but not the other party to:

  • avoid or limit performance
  • terminate a contract
  • penalise for breach or termination of a contract
  • vary the terms of a contract
  • vary the price payable under a contract
  • unilaterally vary financial services provided under a contract and
  • limit a party’s right to sue the other3.