New laws to be introduced will protect small businesses
from unfair contracts terms in standard form
From 12 November 2016, the laws governing the inclusion of
unfair contract terms in certain contracts with small businesses
will dramatically change. The new laws to be introduced have been
designed to give small businesses greater bargaining power in
negotiating standard form contracts.
The new laws ensure that all contracts may be subject to
negotiation and that the old version "take it or leave
it" contracts may be unenforceable. In brief, all relevant new
contracts entered into are up for negotiation.
The purpose of the new law
The Treasury Legislation Amendment (Small Business and Unfair
Contract Terms) Act 2015 (Act) amends the existing legislation by
extending the protection of unfair contract terms to businesses
with less than 20 employees that agree to standard form contracts
valued below the prescribed threshold.
The purpose of the Act is to reduce instances of unfair contract
terms in small business. The intended result is to enable a more
efficient allocation of risk within the contract and enable small
businesses to agree to such contractual terms with greater
When does the new law apply?
The Act will become effective on 12 November 2016. The unfair
contract term protections will apply to standard form small
business contracts entered into, or renewed, on or after 12
November 2016, where:
the contract is for the supply of financial goods or
at least one of the parties is a ' small business'
(i.e. a business employing fewer than 20 people, including casual
staff employed on
a regular and systematic basis); and
the upfront price payable under the contract does not exceed
$300,000, or $1 million if the contract is for more than 12
Some examples of these types of contracts are credit card
agreements, business overdraft accounts, car loans or broker
The Act does not apply retrospectively
The Act does not apply retrospectively to contracts entered into
before the commencement of Schedule 1 of ASIC, however it is
the contract is renewed on or after the commencement date,
whereby on and from the renewal day the amendments take effect;
if a contract term is varied on or after the commencement and
the renewal of the contract, the amendments apply on and from the
variation day relative to the conduct that occurs on or after that
Despite these above points, the amendments do not apply to a
contract or a contractual term relative to the purchase of
Consequences for small business
Should a term be declared unfair, it becomes void and
inapplicable as the contract is ineffectual without the unfair term
and is non-binding on the involved parties. The new law gives small
businesses bargaining power in negotiating standard form contracts.
The definition of "UNFAIR" is not "black and
white" and will be determined on a case-by-case basis.
If you operate a small business and believe you might be
entering a ' relevant' contract that the new laws would
affect, contact Madison Marcus Law Firm to ascertain whether the
new laws apply and how the changes can be used to your advantage.
Call 131 LAW (529) to speak to a lawyer today.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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