Winning a 38-year battle: Why the unfair contract protections for small business are a good thing

Peter Strong 

In 1977 one of the issues mentioned in the very first set of minutes of the newly founded Council of Small Business of Australia was a need for changes to contract laws and processes to stop some big businesses from abusing and misusing their power.

Now the Turnbull government, through Minister for Small Business Kelly O’Dwyer, has confirmed it will bring in those changes.

Since 1977 we have fought a long battle for fairness and some big businesses have fought a long battle to keep their ability to abuse the people who run small businesses.

It was a long hard fight – certainly too long. But we have finally achieved significant outcomes for small business owners through hard-fought for reforms.

Who are the big businesses who abused their power and caused untold damage to individuals, to the economy, to our culture? The biggest landlords, dominant retailers, some franchisors and suppliers to industries where there is little competition and only a few dominant players.

What has been the impact of the behaviour of these big businesses? The impact on people’s lives has probably been the most profound. The unethical big businesses were responsible, through their behaviour, for the stress, bankruptcies, loss of livelihood, major health problems and indeed self-harm from people who found themselves the victim not of their own failings but of contracts that gave the biggest businesses the ability to change rules willy-nilly, to make sure court cases would go for ever and to abuse people’s trust.

Another important impact is on productivity. The unprecedented dominance that big retailers have over the supply chain has placed unmanageable stress on our producers and manufacturers. As a result innovation has waned and productivity languishes.

The other negative impact has been on retail diversity. As more and more mega shopping centres take over towns and communities we find the choice of shopping is limited to franchises as the quirky retailers and cafes are forced out of business.

So these changes to contract protections are very necessary.

Up until now the argument from the unethical businesses is that a business-to-business contract is the same no matter if, for example, it is Rio Tinto versus BHP or Rio Tinto versus an owner/driver. That is of course wrong. The owner/driver is a person, like any other person; no board of directors, no millions of dollars waiting to be spent on court cases, no experts advising on everything that is said and done. It is just them and perhaps a small number of paid advisers like an accountant and a lawyer.

What that owner/driver does have is optimism and trust – no one goes into business if they are pessimistic and mistrusting of all and sundry. These changes remove the capacity of the likes of large corporates to use their expertise and resources to force a contractor into a position where they have no rights and no recourse. These changes do not impact on their dealings with other big businesses.

The only businesses that need worry are the bad franchisors, the questionable landlords and any retailer who practices the dark arts of threats and innuendo instead of professionalism and transparency.

Congratulations to the government for not blindly rejecting the amendments to its legislation on party grounds. Congratulations to the Greens for moving the important amendments and congratulations to Labor for not hindering the process.

We know the pressure from big business lobbyists must have been huge. Have we reached a place in time when small business and big business lobbyists given equal time and equal measure? If so – excellent. But we must remain forever vigilant as some of the biggest businesses do have a history of deviousness, secret backroom deals and misuse of power.

Background

As background the federal government’s proposed changes to unfair contract terms recently passed the Senate, with amendments, and needed to return to the House of Representatives.

The new laws will extend the unfair contract term protections available to consumers to cover small business contracts. The new protections will allow the courts to declare that any unfair contract terms are void.

As a result the new protections as currently drafted will be available for businesses with less than 20 employees for transactions under $300,000, or for multi-year contracts totalling less than $1,000,000.

These changes will prohibit (render void) any clauses in a standard form business-to-business contract that create a major imbalance between big and small businesses, and which cannot be shown to be really needed or commercially relevant.

The Australian Competition and Consumer Commission, State and Territory Australian Consumer Law regulators and the Australian Securities and Investments Commission (for contracts relating to financial services and products) will be responsible for enforcing the law.

The ACCC is intending to provide guidance on the new protections once these laws are passed. We understand the ACCC and ASIC will hold a joint webinar about the protections once the laws are enacted.

Peter Strong is the chief executive of the Council of Small Business of Australia.