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How to ensure the new unfair contract laws are working for you

ACCC’s Deputy Director Michael Schaper

We recently caught up with the ACCC’s Deputy Director Michael Schaper who explains how the newly introduced contract term laws are protecting small businesses from unfair terms.

If you signed a standard contract as a business on the 12th November you might be in luck.  That’s because new unfair contract term laws kicked off from that day.   As consumers, we are already covered by laws that protect us against unfair contract terms.  The good news is that these laws have now been extended to B2B contracts.

As small business owners there are certain industries where contracts can contain ‘take it or leave it’ provisions. Following a review of standard form contracts, the ACCC engaged with businesses across 7 industries about amending or removing these problematic terms. In developing the new laws, Michael says that the ACCC has focused on reviewing contracts in industries that are often crucial to small business operations like advertising, shopping centre leases, franchises and contracts with telecommunication companies.

According to Michael, a number of positive changes have been made across consulted industries. For example, some telco service providers have agreed to review or remove the early termination charges imposed on small business.

The new laws focused on 3 most commonly occurring problems:

  1. Unilateral variations: For example, a contract where one side can change the terms and conditions and the other side doesn’t get to have a say.
  2. Liabilities and Indemnities:  Where liability and indemnity clauses are unreasonable.
  3. Terminations:  Could be where big business can get rid of the contract any time they choose.

While winning a contract can make a big difference for small businesses looking to grow or providing them with surety, Michael believes there are a number of steps that people can take prior to signing a contract.  These include:

  • Engage a lawyer to thoroughly review the contract.
  • If you believe there are unfair clauses in a contract you are about to sign, raise these directly with the organisation.
  • Try to keep a record of your contract negotiations with electronic communications to make the process easier.
  • If you are having trouble convincing the other party to amend a particular contract term that you believe is unfair, the NSW Business Commissioner’s Office may be able to mediate an outcome.
  • Also, try your industry groups or association as they may have other businesses in your industry that are experiencing the same issues.
  • Court takes a long time and comes at an expense you may not have, so consider these factors before proceeding with legal action.

According to Michael ‘the average small business in Australia signs about 8 standard contracts per year’.  At the same time the ACCC also receives about 15,000 calls and emails a year from small business owners and operators about issues like unfair contract terms.  While they may not be able to provide legal advice the ACCC uses this data to look for trends in certain industries where they can then begin to focus their attention.

The new laws apply for contracts with a dollar value of less than $300,000 and less than $1 million per year and for companies that employ less than 20 people.

While it’s not the official view of the ACCC Michael did close our interview with a good tip that might help small business owners wade their way through contracts: ”Grab 2 highlighter pens, mark in yellow all the things you need to do and then mark in green all the things the other side has to do.  This will provide you with a starting point to determine if the contract contains any take it leave it provisions that won’t be in your favour”.

You can find out more about the new laws on the ACCC’s website.

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