Unfair contracts legislation gets green light in Senate

Legislation to extend unfair contract term protections to small business was passed in the Senate last night.

Small business minister Bruce Billson previously promised the extension of unfair contract provisions for small business and the legislation represents an election commitment of the Abbott Government.

Specific amendments, which will see increased thresholds for coverage from $100,000 to $300,000 for contracts up to 12 months long and $300,000 to $1 million for contracts greater than 12 months, were added to the legislation in the Senate by the Greens Party, which want to see more businesses covered by the legislation.

The legislation will now be returned to the House of Representatives where the amendments will be considered.

Melissa Monks, special counsel at law firm King & Wood Mallesons, told SmartCompany this morning the amendments will mean a “much greater number of small business contracts” are captured by the legislation.

However, Monks says the Senate changes are “surprising” and represent significant increases in the thresholds, which will affect whether some contracts are eligible for protection under the regime.

“I think the Parliamentary debates and the broader community discussion for a few years now reflect the difficulty of trying to balance providing small businesses with protection with the fundamental concepts of sanctity of contract and having confidence in contractual arrangements,” she says.

Monks says the amendments, if passed in the lower house, will increase the transitional period from six to 12 months and this will give businesses more time to prepare.

“I think this is a sensible change that reflects the significant work required for all businesses – large and small – in getting staff up to speed with, and also rolling out internally, changes to policies, practices and contract terms,” she says.

Stephen Giles, partner at Norton Rose Fullbright Australia, told SmartCompany this morning he believes while there is a lot of support for the legislation in the Senate, senators also expressed a lot of “disquiet” in terms of the content of the bill and compliance costs.

He says the disquiet reflects some concern in the wider business community about the changes.

“A number of industry bodies are saying there are some significant compliance challenges with the legislation, a number of definitions are opened ended and ambiguous,” he says.

Giles says there is also significant concern that rather than help small businesses it will lead to small business being “excluded from opportunities” or result in the people who transact with small businesses incurring higher transaction costs.

Giles describes the legislation, which he thinks could be a world-first, as a “very all-pervasive piece of legislation” which could make it “very difficult for parties to get contractual certainty”.

“Business is built on the principal of freedom of contract. Australia is the only country in world to enact this legislation, it is a world first,” he says.

“I would think this legislation would come as considerable surprise to international companies wanting to do business in Australia.”

Giles, who says he has been “intensively involved in the debate” and has made submissions on behalf of the franchise sector, thinks while the franchise sector will be able to cope relatively well with the legislation, there are potentially far reaching consequences for all types of business.

“The legislation is well intentioned, but could hold significant issues for business,” he says.

“It’s more external businesses, because this will apply to all commercial contacts.”

“It applies to all businesses because it’s related to transactions with small business.”