States sign up to unfair contract provisions for SMEs: What it will mean for your business

Small Business Minister Bruce Billson is pushing ahead with election commitment to extend unfair contract provisions to SMEs, revealing yesterday the state and territory governments have pledged their support for the changes.

Together with Prime Minister Tony Abbott, Billson said in March the government would introduce legislation to protect small businesses from unfair contracts imposed by larger companies within months.

Yesterday Billson announced he has received the necessary support from the state and territory governments under the applicable intergovernmental agreements, which means “a key step has been completed” in making the change.

Billson also revealed details of the reforms, which were first announced in the 2014 budget.

The protections will be available to enterprises with fewer than 20 employees and for transactions under $100,000 or multi-year contracts totalling less than $250,000.

Once the protections are in place, courts will be able to declare a term within a contract void if it is unfair.

“For example, a term that allows a big business to unilaterally change the price or key terms during the course of the contract could be considered unfair,” Billson said in a statement.

Billson said businesses that offer “low value standard form contracts” will have to comply with the new legislation.

The extension of the unfair contract provisions will be overseen by the Australian Competition and Consumer Commission, which will receive $1.4 million from the government to ensure compliance.

Peter Strong, executive director of the Council of Small Business of Australia, congratulated Billson on advancing the reforms, telling SmartCompany this morning this is a “big moment” that the small business community has been waiting for since the late 1970s.

While Strong says the threshold below which the provisions will apply will be “something to work on”, he said until now the SME community hasn’t had that starting point.

“Well done to Bruce Billson,” Strong says.

Melissa Monks, special counsel at King & Wood Mallesons, told SmartCompany the thresholds indicated by Billson are “not insignificant, and quite broad” and will have implications for both parties to a contract.

While Monks says it is unclear at this stage if protections in multi-year contracts will only apply to enterprises with fewer than 20 employees, she believes it “still raises questions such as how options to renew and price change clauses impact assessing whether the unfair terms regime applies”.

Monks says this is in addition to the discussion as to “what may substantively amount to unfairness in a B2B context” and if this is different to the current considerations in existing unfair terms legislation and regulatory guidance that apply to consumers.

“Factors like bargaining position and sophistication of businesses are greater generally than for consumers,” Monks says.

Monks says bipartisan support for the reforms “seems likely” and so businesses should start preparing for the changes.

This may involve reviewing existing contracts to assess any potentially unfair terms, making a “risk call” as to whether the terms should be amended, and if necessary, drafting and implementing amendments. Employees may also require training to ensure they understand how to prepare contracts that fall within the law.