From unfair contract terms to optimism: A VSBC update on Victoria’s small businesses

Melbourne

The Victorian Small Business Commissioner, Judy O’Connell, provided Dynamic Business with insights into the state’s small business sector, including barriers to growth and the need for owners to prioritise mental health, ahead of her appearance at the Vodafone National Small Business Summit on Friday (25 August).

Judy O’Connell, Victorian Small Business Commissioner since December 2016

DB: What will you be speaking on at the summit?

O’Connell: Creating a mentally healthy small business. Small business owners are often under enormous pressure and mental strain and that pressure can be exacerbated by a feeling of responsibility towards their staff, coupled with a sense of isolation.

In May, this year, I launched an information initiative to help small business operators preserve their mental health while riding the ups and downs that come with establishing and growing a business. This resource supplements information already available for business operators that assists them in protecting the mental health of their employees, and has been developed to assist small business owners to recognise if they need help and where to find it.

I’m passionate about ensuring small business owners prioritise their own mental health and hope this initiative will be incorporated into every small business’s planning – this can help a business owner identify early on when additional assistance is needed to keep functioning at an optimum level if mental health difficulties arise.

DB: How is the local small business sector faring?

O’Connell: Victoria has over 550,000 small businesses that make up almost half of private sector jobs, so they are vital contributors to the state’s economy. It’s encouraging to see that in 2016, more than 15,300 new businesses were created in Victoria (a growth of 2.8%). When speaking to small business groups, I continue to be inspired by the optimism and resilience of the sector, but I also recognise the role of government to remove obstacles, so business owners can concentrate solely on running their businesses.

I’m mindful of the part I play as Victorian Small Business Commissioner in advocating for small business, monitoring market trends, legislation and government policies that impact on them, and engaging with business.  The Victorian Small Business Commission’s (VSBC) alternative dispute resolution function also plays a key role in assisting small business to resolve disputes, and save money and time, and alleviate stress. We have developed a three year strategy so we can focus on the goals and actions needed to ensure we create a fair and competitive environment for Victorian small business to operate, grow and prosper.

DB: What are some of the obstacles owners are facing?

O’Connell: Managing cash flow is consistently reported as the most important issue facing Australian small businesses, and late payments cause a ripple effect throughout the supply chain, reducing cash flow for all businesses along the way. This is evidenced through our regular consultation with businesses, and responses to the Australian Small Business and Family Enterprise Ombudsman’s Late Payments Inquiry.

The Victorian Government has given its support to the Australian Supplier Payment Code (the Code), a voluntary national code of fair payment from businesses to their small business suppliers. Businesses signing up to the Code commit to:

  1. Pay small business suppliers within 30 days (subject to conditions)
  2. Pay all suppliers on time
  3. Provide clear guidance about payment procedures to suppliers
  4. Work with suppliers to improve invoicing and payments practices

The Code is administered by the Business Council of Australia and came into effect on 1 July 2017. Victoria played a key role in the development of the Code, which is open to all businesses, industries and governments, and so far over 50 organisations have become signatories, which is great to see.

The issue of unfair contract terms has long been a concern for small business, and the extension of certain unfair contract term protections from consumers to small businesses in November last year was welcomed. The new law applies to small businesses entering into standard form contracts (i.e. contracts offered on a ‘take it or leave it’ basis, where there is no negotiation about the terms, or the fine print).

To be covered, either party to the contract must have less than 20 employees. The new protection also only applies if the upfront price payable under the contract is below $300,000 for contracts of less than 12 months duration, or under $1 million otherwise.

The VSBC has relied on these new protections to advocate on behalf of small businesses adversely affected by unfair contract terms, and made representations to larger businesses, reminding them about their new obligations, so they do not include such terms in their contracts with small business.

After these reforms commenced, the VSBC made a representation to a waste management business about its standard form contract, as we were concerned about its rollover and liquidated damages clauses. The business responded positively and indicated it had implemented a revised contract in order to be compliant with the new legislative reforms.

DB: How is the VSBC engaging with businesses?

O’Connell: Every small business sources information differently, and every small business is time-pressed, so it’s important that the VSBC engages with small business using a range of different channels – our website, face-to-face presentations and round tables, workshops, webinars on various topics (including retail leasing, franchising, fair and unfair contract terms and working from home), eNewsletters, business expos and conferences, liaising through industry organisations, chambers of commerce and advisors, contributing to industry magazines, and social media (we’re now on Twitter, Facebook, Instagram and LinkedIn).

Personally, it has been really important for me during my first year as Victorian Small Business Commissioner to speak to as many business owners and industry bodies as possible, in both metropolitan Melbourne and regionally, to understand the issues they face. It is also crucial to engage with those bodies that interact with small businesses.

Earlier this year the VSBC and Melbourne Water launched new guidelines that will ensure small businesses have more say in the way major water projects are planned. The guidelines reflect the outcome of collaboration between the VSBC and Melbourne Water, for the benefit of small businesses, and provide some best practice guidance about how Melbourne Water will deal with and support small businesses during such works.

The aim is to have all infrastructure projects use the Guidelines when major infrastructure works are being delivered as such works can have a serious adverse effect on the viability of small businesses.

DB: What sort of disputes does the VSBC deal with?

O’Connell: The VSBC deals with disputes across a wide range of areas, including business-to-business, business-to-government, retail leasing, owner drivers and their hirers, farm debt and taxi industry disputes.  In terms of the most common small business disputes, the top categories involve:

  • disputes about not understanding or reading contracts;
  • unpaid monies; and
  • retail tenant and landlord leasing disputes.
DB: How can businesses mitigate the risk of disputes?

O’Connell: VCBC’s top tips for avoiding disputes are:

  • Put it in writing – don’t rely on oral assurances;
  • Read and understand a contract before you sign it;
  • Make objective, not emotional decisions – get advice;
  • Recognise mutual interests (not a win-lose arrangement);
  • Interact with businesses of like-values;
  • Communicate early and often;
  • Be accountable and responsible for your obligations;
  • Conduct yourself professionally; and
  • Have pre-agreed, effective, quick and fair dispute resolution procedures.

The VSBC wants to make sure that small businesses avoid unnecessary business costs, but we understand that sometimes commercial disputes can’t be avoided. So, it’s important for businesses to know that when disputes do arise, there is support and services available to help resolve disputes quickly and at low cost. This helps businesses to avoid disruption, escalating costs, loss of control, and emotional upset, and in many cases, it allows for an ongoing business relationship between the parties.