Draft legislation to outlaw unfair contracts and extend protections to more SMEs

More Australian businesses will be protected from unfair contract terms if draft legislation released for public consultation this week is approved by Parliament. 

The long-awaited reforms will outlaw unfair contract terms for small business and consumers, while also extending the existing protections to businesses with up to 100 employees or, alternatively, up to $10 million in annual turnover.

Unfair contract protections were extended to small businesses in 2016, however they currently only apply to businesses with up to 20 employees. 

The draft legislation seeks to strengthen the existing protections further by allowing courts to impose civil penalties for contraventions, while also removing the requirement for the value of a contract to be under a certain threshold.

The legislation would also create a rebuttable presumption provision for contract terms used in similar circumstances and provide further clarity around the definition of ‘standard form’ contracts. 

The draft legislation was developed following consultation with members of the small business community that finished in November 2020. Following that process, an agreement was reached between the Commonwealth and state and territory consumer affairs ministers to better protect small businesses. 

However, the small business community has been waiting for the best part of a year to see how the reforms would work in practice. 

Australian Competition and Consumer Commission boss Rod Sims told SmartCompany in April that small businesses across the country were still being subjected to unfair contract terms and there was “no doubt” the delay in making the terms illegal was costing those businesses greatly. 

Small Business Ombudsman Bruce Billson said at the time that unfair contract terms continued to account for a “very significant part” of his office’s dispute load, along with disputes with the big tech platforms. 

The exposure draft legislation is now open to consultation via the Treasury website, with interested parties given until September 20 to make submissions.