By: Mark Yum, Partner
New laws to be introduced will protect small businesses from unfair contracts terms in standard form contracts.
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 confidence.
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 services;
- 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 months.
Some examples of these types of contracts are credit card agreements, business overdraft accounts, car loans or broker agreements.
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 applied if:
- the contract is renewed on or after the commencement date, whereby on and from the renewal day the amendments take effect; or
- 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 day.
Despite these above points, the amendments do not apply to a contract or a contractual term relative to the purchase of land.
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.
