On 12 November 2016, the Commonwealth extended certain unfair contract term protections from consumers to small businesses.  The VSBC relied on these new protections to advocate on behalf of small businesses adversely affected by unfair contract terms. The VSBC made representations to larger businesses, reminding them about their new obligations, and to ensure they do not include such terms in their contracts with small business.

The law applies to small businesses entering into standard form contracts. These are contracts offered on a ‘take it or leave it’ basis, where there is no negotiation about the terms, or fine print. To be covered, either party to the contract must have less than 20 employees. The protection also only applies if the upfront price payable under the contract is below $300,000 for contracts of less than 12 months duration, or under $1 million otherwise.

Some examples of unfair contract terms are:

  • terms that enable only one party to avoid or limit their obligations under the contract
  • terms that enable only one party to terminate the contract
  • terms that only penalise one party for breaching or terminating the contract
  • terms that enable only one party to vary the terms of the contract.

An automatic rollover clause is another example of a clause that may raise concerns. The VSBC has previously commented on such terms being common in various industries.

After these reforms commenced, the VSBC made a representation to a waste management business about its standard form contract. The VSBC was concerned about its rollover and liquidated damages clauses. The business responded positively to the VSBC and indicated it had implemented a revised contract in order to be compliant with the new legislative reforms.

The VSBC produced an Information Sheet on Unfair contract terms in business contracts – New protections for small business, which is available on the VSBC website.

Watch the Australian Competition and Consumer Commission (ACCC) video Know your rights: unfair contract terms & small business

Read more on the ACCC website.

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