Small business protection from unfair contracts

The Australian Consumer Laws are designed to protect an individual against unfair practices. Under the proposed Unfair Contracts, some of these protections will be extended to protect small businesses as well (who don’t fall within the definition of consumer). The unfair Contracts Act is designed to make it harder for a business to enforce certain standardized contracts, or at least certain clauses in those contracts, against a small business. The kinds of terms that will be in the firing line include:

  • Clauses that allow one party to increase the price without allowing the other party to then terminate the contract.
  • Clauses that allow a party to vary the terms of the contract without informing the other party and allowing them to then terminate the contract.
  • Clauses that allow one party but not the other to terminate

Will these protections apply to franchising? Yes, if the upfront price of the contract is either less than $100,000.00 or if the contract duration is 12 months or more, the upfront price is no more than $300,000.00. Given the vast majority of franchise agreements are presented or a ‘take it or leave it’ basis and often do not allow the individual or small to terminate the agreement before the term, there could be a flurry of activity as franchisors update their agreements. Other typically clauses in franchise agreements that allow the franchisor to buy back the franchised business at an unfair amount or to reduce the obligations they offer to provide are likely to be now enforceable.

This Act was passed in October 2015 by Parliament and is expected to come into effect by the end of 2017. If you use a standardised contract, such as terms and conditions, now is the time to review your contracts. If you find clauses that give you all the power and your customer- be they an individual or a small business- none, you might need to re-phase the clause or perhaps get rid of it completely. Ask yourself if that clause is necessary to do business with you and protect your legitimate interests. If you have been using a standard contract “borrowed” off another business or maybe downloaded from www.whoknowswheres.com, it’s a great time to chat to us about getting a contract, or, terms and conditions that complies with these new amendments and is tailor made to your industry and your business.

The amendments to the Unfair Contracts bill mean, if you are a small business you will soon have another string on your bow if you were to end up in a dispute over a contract.

For advice on your business contracts click here to contact Coutts.