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Changes to the Unfair Contract Terms Laws & What SMEs Need To Know!

Change to the laws

In a pivotal development that holds far-reaching implications for SMEs across Australia, the Australian Competition and Consumer Commission (ACCC) has sounded the call for all businesses to take proactive steps in reviewing and adapting their standard form contracts. The aim is to eliminate or revise any unfair contract terms before impending penalties come into force.

Already introduced on 9th November 2023, the amendments to the Australian Consumer Law will usher in new laws which will prohibit businesses from proposing, using, or relying on unfair contract terms in standard form contracts with consumers and small businesses. Unlike the previous legal framework where Courts could merely declare specific terms void, these changes empower Courts to levy substantial penalties on entities and individuals who incorporate unfair terms into their contracts.

The Impact on Small Businesses

For small businesses, this represents a transformative shift. Standard form contracts, often wielded on a 'take it or leave it' basis, have traditionally favoured the offering party, placing smaller enterprises at a disadvantage due to their limited bargaining power.

With these changes, small businesses stand to gain considerable protection. The introduction of penalties for non-compliance ensures that consumers and small businesses can assert their rights more effectively in contractual negotiations. This newfound legal backing not only levels the playing field but also fosters a more equitable business environment.

Proactive Measures for Small Businesses

To navigate these changes effectively and safeguard their interests, small businesses are strongly urged to review and adapt their standard form contracts. Here are key considerations:

  1. Fairness from All Angles: Scrutinise contract terms from both the business's perspective and that of the consumer or business you are contracting with. Evaluate the necessity of each term, ensuring a balanced approach.

  2. Counter-Balancing Clauses: Incorporate counter-balancing clauses within contracts to maintain fairness. Consider instances where a business needs to make unilateral changes to products or services and ensure that customers have the reciprocal right to exit the contract without incurring penalties.

  3. Precision in Contract Terms: Avoid overly broad and vague terms. Contractual provisions should be focused and concise, serving the genuine interests of the business.

  4. Compliance with Legal Obligations: Ensure that contract terms do not seek to evade the business's obligations under the Australian Consumer Law. This safeguards customer rights and guarantees compliance with representations made beyond the contract.

  5. Clarity and Transparency: Employ clear and straightforward language in contracts. Vital terms should be prominently highlighted during the sign-up and renewal processes, ensuring transparency.

Protecting More Small Businesses

These changes extend the purview of unfair contract term laws, encompassing a larger spectrum of small business contracts. The threshold for small business contracts now includes enterprises employing fewer than 100 personnel or those with an annual turnover of less than $10 million.

In this evolving landscape, the ACCC's proactive stance underscores the significance of empowering small businesses, promoting fairness, and nurturing a thriving and equitable marketplace.

Note to Small Business Owners: It is crucial to recognise that the new legal provisions introduce substantial financial penalties for businesses that do not comply. Penalties include a maximum of $50,000,000 or three times the value of the "reasonably attributable" benefit derived from the conduct, whichever is greater. For individuals, the maximum penalty stands at $2.5 million.

These changes apply to standard form contracts made or renewed on or after 9th November 2023. The time to act is now. By reviewing and adapting standard form contracts, small businesses can ensure compliance with the evolving legal landscape, safeguard their interests, and participate actively in fostering a fair and equitable business environment.


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