It’s time to dust off your standard form contracts because penalties for unfair terms in small business contracts have arrived and due to an expansion of the definition of “small business contract” the unfair contracts laws will apply to a much broader range of contracts than ever before.
Delivering on its election promise, Labor’s proposed legislation to make unfair contract terms illegal was passed by Parliament in October this year and the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (Act) was given royal assent on 9 November 2022.
What’s new for unfair contracts?
Under existing laws, the worst-case scenario for an unfair term is that it is declared void. Following a strong push by the ACCC, the Act introduces civil penalties for unfair contract terms for the first time, which raises the stakes significantly for those with unfair terms in their standard form small business contracts.
Take a deep breath because each unfair term is a separate breach and could result in a penalty for companies equal to the greater of:
- $50 million;
- 3 x the value of the benefit of the unfair term; and
- 30% of the adjusted turnover in the breach turnover period (which is the period that is the longer of the 12 months leading up to the end of the breach and the period between the start and end of the breach).
In addition to these hefty new penalties, the Act significantly broadens the threshold for a “small business contract” with the effect that these laws will now apply to standard form contracts with businesses which have:
- less than 100 employees (as opposed to less than 20 employees currently); and/or
- an annual turnover of less than $10 million (as opposed to an upfront price less than $300,000 or, for contracts with a duration of more than 12 months, $1 million).
Courts will also have broader powers to make other orders to redress or prevent loss or damage caused by the unfair term on the application of a party to the contract or the ACCC.
When do these changes come into effect?
The good news is that businesses have an opportunity to get their house in order over the coming 12 months as the changes to the unfair contract laws will come into effect on 9 November 2023.
What other changes have been made?
As reported in our paper ‘50 million shades of pain – the new competition and consumer law penalties and the ACCC’s updated priority areas’, the Act also increases the maximum civil penalties for breaches of certain provisions of the Competition and Consumer Act 2010 (Cth) (CCA). It is important to note that, unlike the changes to the unfair contracts laws, the increased penalties for other CCA offences are already in effect.
What does this mean for businesses?
The ACCC has proven to be very active in pursuing businesses with unfair terms in their standard form contracts across an array of industries and has listed unfair contracts as one of its enforcement priorities. This has been the case even without the ACCC having the benefit of financial penalties in its armoury.
The grace period over the next 12 months provides businesses with a valuable opportunity to review their standard form contracts before the consequences of this regime increase in severity and scope.