Standard form contracts are everywhere in business, from supplier terms and equipment leases to franchise and software agreements. If your business is on the receiving end of terms it had no real chance to negotiate, the unfair contract terms rules in the Australian Consumer Law (ACL) may protect you. If you are the business putting those terms forward, they apply to you too.
Unfair contract terms and small businesses
The ACL protects qualifying small businesses from unfair terms in standard form contracts. Expanded rules apply to relevant contracts made or renewed on or after 9 November 2023, and to terms varied or added on or after that date.
A small business can qualify if it has fewer than 100 employees or an annual turnover below $10 million. The old upfront contract price cap no longer applies under the expanded ACL rules.
When is a term unfair?
A term may be unfair if it would cause a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the business relying on it, and would cause detriment if it were relied on. How transparent the term is, and the contract as a whole, are also considered. Only a court can decide that a term is unfair.
If a term is found to be unfair, it is void, but the rest of the contract can continue if it is able to operate without that term. Since the 2023 changes, significant penalties can also apply to businesses that propose, use or rely on unfair terms in standard form contracts.
Before you sign or renew
Pay close attention to clauses dealing with termination, automatic renewal, one-sided rights to change the contract, indemnities and payment obligations. Different rules apply to financial products and services, so check which regime covers your contract.
We can review the standard form contracts you are being asked to sign, or check your own terms before you use them with small business customers. Our business and commercial lawyers can also help with employment contracts, and if a dispute arises our litigation lawyers in Melbourne can act for you. Call us on (03) 9629 2211 or send us an enquiry.
This article provides general information about the law as described above. It is not advice on your circumstances. Laws, procedures and deadlines can change, so please get advice about your matter, particularly before signing documents or where a deadline may apply.
