Australia’s competition watchdog has welcomed the passing of new legislation outlawing unfair contract terms, a long-awaited move advocates and lawmakers say is vital to stop large companies from exploiting the small businesses that supply them with goods and services.
The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 passed into law last week, outlawing a suite of contract terms that disproportionately favour larger businesses.
The bill largely focuses on problematic terms included in standard form contracts, which major businesses offer to smaller traders that may lack the bargaining power to negotiate fairer terms on their own.
Such terms can include the ability for one party to unilaterally end or amend an agreement without prior warning, or shift liability to a smaller party that may not even have full control of the business at hand.
Speaking in the lower house, Assistant Minister for Competition, Charities, and Treasury Andrew Leigh said the Australian Competition and Consumer Commission (ACCC) observed contracts in which milk processors were free to unilaterally change they price they paid farmers without allowing them to void the contract.
In another case heard by the ACCC, a commercial landlord used contract terms allowing it to automatically renew contracts unless the customer opted out, and a term that allowed the office provider to retain a security deposit unless a tenant proactively asked for it.
The new protections will extend to small businesses with fewer than 100 employees, or with an annual turnover of less than $10 million. The protections will apply to any contracts these businesses broker, regardless of their monetary value.
Before the legislative update, only businesses with fewer than 20 employees enjoyed protection from unfair contract terms.
Major companies now have 12 months to ensure their standard form contracts comply with the crackdown.
“Contract law can be complicated, but the principle is simple: big and powerful firms must stop putting unfair terms into their contracts with consumers and small businesses,” Leigh told Parliament.
The ACCC welcomed the move on Tuesday, with chair Gina Cass-Gottlieb calling the legislation an “enormous boost” for small businesses.
“We have long highlighted the adverse consequences of unfair contract terms on consumers and small business, including franchisees, and suggested that they be outlawed and penalties are required to provide a stronger incentive for businesses to comply,” she said.
“The unfair contract terms laws are vital to protect consumers and small businesses against terms in these contracts that take advantage of this imbalance in bargaining power,” she added.
The ACCC has been empowered to ask the courts to void such contract terms since 2016, but until now, the watchdog lacked the ability to chase civil penalties for the companies that breach those rules.
The Coalition government kicked off consultations on stronger small business protections in 2019, and in 2020 secured the agreement of state and territory consumer affairs ministers to move ahead with its plans to make unfair contract terms unlawful.
However, the tabling of draft legislation was delayed through 2021.
Former ACCC chair Rod Sims said the hold-up meant small businesses were still at the whim of larger companies, five years after the watchdog was empowered to challenge unfair contract terms.
“Small businesses are still getting unfair contract terms, and while they are not illegal and there are no penalties, they’ll keep getting unfair contract terms,” he said in 2021.
The outlawing of such terms also ticks off an agenda from the election checklist of the Council of Small Business Organisations Australia (COSBOA).
“Reforming competition policy is crucial to ensure Australia remains a place where small businesses can grow and thrive – a place where people can bring their entrepreneurial ideas to life and be their own boss as an alternative to working under the CEO of a big, monopolistic company,” COSBOA CEO Alexi Boyd said in May.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
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