One in two small businesses relying on new protections against unfair contract terms

unfair contracts

A survey of 1280 SME operators has found that nearly half (49.6%) had relied on unfair contract terms legislation, implemented last year, to negotiate fairer terms with big businesses during the past six months.

Conducted by East & Partners, the SME Transaction Banking survey also showed that nearly four in five respondents (78.2%) were aware of protections arising from the unfair contract term provisions of the Competition and Consumer Act 2010 being extended to cover standard form small business contracts a year ago.

“The effect of this legislation has been to level the playing field for small business in dealings with large entities that have much greater financial power,” said Australian Small Business and Family Enterprise Ombudsman, Kate Carnell.

“If a court finds that a term in a standard form contract is unfair, the term is void. This means that the term is treated as if it never existed.

She noted that while her office had handled more than 20 assistance cases involving unfair contracts, most big businesses understood their obligations and had acted to ensure compliance.

Earlier this year, the Ombudsman worked with ASIC and the big-four banks to ensure small business loan contracts were fair and easier to understand. She explained, “This means that banks can no longer unilaterally vary a contract. They no longer have the power to terminate a loan for an unspecified negative change in the circumstances of the customer.”

Minister for Small Business Michael McCormack advised SME operators that if they think a contract term is unfair, they should ask the other party to amend or remove it.

“If the term is not removed or altered, I strongly encourage the small business to report it to the Australian Competition and Consumer Commission or seek assistance from their state Small Business Commissioner or the Australian Small Business and Family Enterprise Ombudsman,” he said.

“Contracts covered include those between businesses where one of the businesses employs less than 20 people and the contract is worth up to $300,000 in a single year or $1 million if the contract runs for more than a year.

More information

ACCC: www.accc.gov.au/business/business-rights-protections/unfair-contract-terms

ASIC: asic.gov.au/about-asic/what-we-do/laws-we-administer/unfair-contract-terms-law/

Related: ACCC has improved ‘tens of thousands’ of contracts for SMES since November 2016