The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 was introduced to the Australian Parliament to protect small businesses from unfair contract terms. The bill, which passed on 12 November 2015, amends the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (ASIC Act) to extend the unfair contract term provisions to cover small businesses.
What is an unfair contract term?
An unfair contract term is a provision in a contract that causes a significant imbalance in the parties` rights and obligations and is not reasonably necessary to protect the interests of the party who benefits from the term. Under the new law, a contract term is presumed to be unfair if it:
– causes a significant imbalance in the parties` rights and obligations,
– is not reasonably necessary to protect the interests of the party who benefits from the term, and
– would cause detriment (financial or otherwise) to a small business if it were applied or relied on.
The new law applies to standard form contracts entered into or renewed on or after 12 November 2016.
Who does the law apply to?
The law applies to small businesses that enter into standard form contracts with other businesses or large government entities. A small business is defined as one that employs fewer than 20 people and the upfront price payable under the contract is no more than $300,000 (or $1 million if the contract is for more than 12 months). The law does not apply to contracts entered into by individuals, or by small businesses with consumers.
What are the consequences of unfair contract terms?
If a contract term is found to be unfair, it will be void and unenforceable. The rest of the contract will continue to be binding if it can operate without the unfair term.
What should small businesses do?
Small businesses should review their standard form contracts and remove any unfair contract terms. They should also ensure that any new contracts entered into or renewed on or after 12 November 2016 comply with the new law.
In conclusion, the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 is an important step towards protecting small businesses from unfair contract terms. Small businesses should take the necessary steps to ensure compliance with the new law to avoid any potential legal and financial consequences.