Labor Government set to deliver on its promise of unfair contract penalties

It’s time to sound the alarm as it looks like the Albanese Government is set to deliver on its election commitment to introduce penalties for unfair terms in standard form small business contracts.

This has been confirmed by the Australian Small Business and Family Enterprise Ombudsman, who announced on 26 July 2022 that the Government will introduce legislation in the upcoming sitting period to make unfair contract terms illegal.

Labor’s pre-election promise

In the lead up to the Federal election in May 2022, Prime Minister Albanese was critical of the Morrison government’s failure to introduce legislation to Parliament to make unfair contract terms illegal with sufficient time for the legislation to be passed before the election. The then Morrison government introduced its unfair contracts bill for the first time in February of this year, but it then lapsed in April as a result of the dissolution of the House of Representatives just prior to the election. In his election campaign, Prime Minister Albanese promised that the Labor Government would get the job done and it looks like he might just have his ducks in a row to deliver on that promise.

The current state of play

So, what’s all the fuss about? The ACCC has been agitating for some time for reform of the unfair contracts regime due to its lack of teeth in terms of the ACCC’s ability to enforce these laws1. As the legislation currently stands, an unfair term in a small business contract is not illegal. In a worst-case scenario, the unfair term can be rendered void and will be unenforceable. Unfortunately, this hasn’t been enough to stop the prevalence of unfair terms, notwithstanding the ACCC has been incredibly active in this area across a broad array of industries and has announced that protections for small businesses are one of its top enforcement priorities.

What is Labor’s proposal?

According to the Government’s recent announcement, the bill will seek to make two critical changes to the unfair contracts regime:

  • Firstly, the amendments will give the ACCC its big wooden stick by introducing civil penalty provisions which will allow the ACCC to seek a civil penalty from a Court for a breach of the unfair contract laws.
  • The amendments will also seek to protect a greater number of small businesses by:
    • increasing the threshold for a small business from businesses with less than 20 employees to businesses with less than 100 employees; and
    • introducing an alternative threshold for eligibility of having an annual turnover less than $10 million.

Of course, the devil will be in the detail which will be revealed in the not too distant future. In the meantime, we encourage all businesses with small business contracts to ready themselves for a very active regulator that is about to have a few more tricks up its sleeve.

Addisons will be closely monitoring this area for developments. Please follow Addisons on LinkedIn for regular updates.

1 Refer to our article in October 2018 “Penalties looming for unfair small business contracts”.

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