There’s less than 280 days until the expiration of the transition period for the new ‘small business’ unfair contract terms legislation (the Act), so if you haven’t already started reviewing your existing processes and contracts to ensure they comply with the new legislation, you’re well advised to do so as soon as possible.

What’s the latest?

This week ASIC published an alert (Information Sheet 211) regarding the manner in which businesses should navigate the new laws. The ASIC alert summarises the Act’s protections for small businesses from unfair contract terms in standard form contracts, in particular urging businesses to use the transition period to review contracts for potential terms that would breach the new requirements. The alert was issued by ASIC as part of its supervisory role in connection with financial products and services.

Speaking on the release of the guide, ASIC Commissioner Greg Tanzer said,

 ‘Small businesses, like consumers, have limited market power and a reduced ability to vary ‘take it or leave it’ standard form contracts.  The consumer unfair contract term protections get positive outcomes for consumers and ASIC anticipates being able to do the same for small business, once the protections are extended to them.’

 Click here to access ASIC’s Information Sheet 211.

What’s changing?

From 12 November 2016, the existing unfair contract term protections for consumers will be extended to cover standard form small business contracts. More specifically, it will apply to situations where:

  • at least one of the parties is a ‘small business’ (i.e. a business employing fewer than 20 people)
  • the upfront price payable under the contract does not exceed $300,000, or $1 million if the contract is for more than 12 months.

How will small business contracts be affected?

A term of a small business contract will be void if it is unfair. A term is unfair if it:

  • causes a significant imbalance in the parties’ rights and obligations
  • is not reasonably necessary to protect the legitimate interests of the advantaged party
  • causes detriment (financial or otherwise) to the other party.

Terms most at risk?

The terms that are likely to come under the most scrutiny under the new legislation include terms that:

  • only permit one party to vary, renew or terminate the contract
  • penalise only one party for a breach of the contract
  • permit one party to unilaterally determine whether the contract has been breached or to interpret the meaning of the contract
  • impose an evidential burden on the other party in proceedings or limit the other party’s right to sue or adduce evidence
  • limit one party’s right to sue the other party.

What should you be doing?

Businesses have until 12 November 2016 to ensure they are compliant with the new unfair contract terms legislation. We recommend you:

  • review all of your agreements (including franchise agreements which are not excluded by the Act) to work out which contracts and customers/suppliers are affected by the new legislation
  • consider whether you need to amend any potentially unfair terms
  • review your standard terms and contracting procedures, in particular to ensure that you can identify who in your supply chain is a ‘small business’.