Extending Consumer Unfair Contract Term Protections To Small Business

March 1, 2016

The Australian Consumer Law currently contains protections for consumers against unfair contract terms in standard form contracts. The Federal Government has now extended these protections to small businesses.

The new legislation was passed into law in October 2015 and will be enforced from later this year. This stems from concerns that small business operators, like consumers, have very little bargaining power when presented with “take it or leave it” contracts from large suppliers or customers. Additionally, they do not always have the expertise or knowledge to fully comprehend all the terms of the contracts they are signing.

In this environment, larger businesses sometimes include terms in their standard contracts which place the smaller, more vulnerable party to the transaction at a considerable financial disadvantage. The new legislation aims to remedy such situations with courts being able to strike out terms in a small business contract that are considered unfair.

To be considered unfair, a term must cause a significant imbalance in the parties’ rights and obligations, cause detriment to a party if it is relied upon, and not be reasonably necessary to protect the legitimate interests of the party seeking to rely on it.

Businesses which have fewer than 20 employees will benefit from the new protections for contracts under the amount of $1,000,000 (or for contracts under $300,000 which have a duration of less than 12 months). Some transitional provisions apply.

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