The Government has announced that it intends to extend legal protections against unfair contract terms to small business.

This initiative may have significant effect on transactions like equipment finance, commercial lending, and other supplies to small businesses.  There is potential for distribution agreements such as broker contracts and financial services distribution agreements to be affected.

The Australian Consumer Law (ACL) currently contains provisions to protect consumers from unfair contract terms in standard form contracts. Unfair terms include terms which permit one party but not the other to exercise certain rights, such as the right to renew, vary or terminate the contract. The ACL gives the courts power to declare unfair contract terms void.

The Government is concerned that, like consumers, small businesses lack the legal expertise and bargaining power to negotiate changes to the terms of standard contracts.

As well as the proposed extension of the laws, the Government will provide additional funding of $1.4 million to the ACCC to monitor compliance with the law.

The proposed amendments will require the support of the state and territory governments as these jurisdictions pass reciprocal laws to bind businesses conducted by individuals.

It is not yet clear how ‘small business’ will be defined but it will probably follow the Corporations Law test of 20 or less employees (100 if the business is a manufacturer).