Uber’s crash course in the new unfair contracts regime

Uber is the latest target of the Australian Competition and Consumer Commission’s (ACCC) campaign to enforce compliance with the new unfair contract terms regime to protect small businesses.

In a sign of a shift in attitude of the ACCC since the beginning of 2017, the ACCC has moved from taking an educative approach to taking an enforcement approach. The recent publication of the ACCC’s Small Business In Focus Report marks the ACCC’s change in approach. In its media release announcing this Report, ACCC Deputy Chair Dr Michael Shaper said:

“[d]espite the number of businesses that have amended their standard form contracts, the ACCC is prepared to take court action in the coming months to ensure compliance with the new law on unfair contract terms.

While the ACCC did not pursue court action against Uber, the global ride sharing giant voluntarily amended its standard form driver contracts after being pulled up by the ACCC about its broad discretion to terminate those contracts without cause.

Is your business riding for a fall?

If your business uses standard form contracts, you may be subject to the unfair contracts regime if the value of your contracts is less than $300,000 (or $1 million where the term exceeds 12 months) and any of your counterparties employ less than 20 people (for further details on the regime see our focus paper here).

In a nutshell, the regime empowers the Federal Court to declare terms in small business contracts void if they create an imbalance between the parties’ rights going beyond what is reasonably necessary to protect the advantaged party’s legitimate interests. This requires an assessment of the contract as a whole and the detriment likely to be suffered by the other party if the term were relied on.

While there are no penalties directly connected with breaching the regime, the ACCC could run simultaneous arguments of unconscionable conduct or false or misleading conduct if the unfair terms were not adequately disclosed. Both of these arguments, if accepted by a Court, carry maximum pecuniary penalties of up to $1.1 million per contravention (a maximum we expect to increase: see our focus paper here).

Crash course in the new regime

Here are 5 common traps:

  1. Termination rights – reconsider all broad, one-sided termination rights in small business contracts. Uber recently amended its standard form driver agreements to replace its right to terminate for convenience with a more limited right to terminate in certain circumstances, including where Uber was acting reasonably to protect its legitimate interests.
    While we are not privy to the discussions between the ACCC and Uber, the ACCC may have viewed Uber’s right to terminate for convenience unfair, despite being mutual, given the context. In particular, the ACCC may have taken into account the high set up costs for becoming a driver such as purchasing a car, taking out insurance and, in some cases, even quitting former employment. Therefore, Uber drivers could be exposed to significant detriment if Uber were to terminate their agreement without cause.
  2. Unilateral variation – look out for clauses which allow one party to vary key terms, such as the level of fees payable. The terms may be unfair where the power to vary is unrestrained, not adequately disclosed upfront and where the other party is not given the right to terminate if the varied terms are not acceptable.
  3. Automatic renewal – clauses which effect an automatic renewal of the term of the agreement may be unfair if the party bearing the more onerous obligations under the agreement – eg. payment obligations – is not given a right to opt out prior to renewal.
    This was something Sensis recently learnt the hard way. The ACCC alleged that Sensis made false or misleading representations with respect to the price of its services by failing to adequately disclose on its website that its bundled Yellow Pages and White Pages packages automatically renewed for a further 12 months unless cancelled by the customer by a certain date. Further, it allegedly failed to disclose that if certain customers attempted to terminate after the specified date, those customers would be charged a cancellation fee.
    The result was that in May 2017, Sensis entered into a court enforceable undertaking with the ACCC acknowledging that its conduct may have contravened the Australian Consumer Law prohibitions on misleading conduct. Sensis also gave an undertaking to amend its contractual terms for greater transparency, to notify customers of the pending automatic renewal of their contracts, to publish a corrective notice and to tighten its internal compliance procedures.
  4. Limitations on liability and indemnities – reconsider terms which shift the burden of liability for loss or damage caused by one party to the other. Limitations on liability or indemnities which require one party to promise to protect the other from loss or damage on the occurrence of a certain event may be unfair. Consider for example a removalist seeking a broad indemnification from small business customers for loss or damage to third party property in performing its services. Such an indemnity may be unfair unless it excludes loss or damage caused or contributed to by the removalist.
  5. Unfair charges – assess carefully all hidden fees, or any terms which impose liquidated damages, cancellation charges or interest rates on overdue payments to make sure they are carefully drafted not to go beyond recouping the costs actually likely to be suffered by the advantaged party.

All standard form small business contracts which are unfair are at risk under this new law. The ACCC has sounded the warning bell on compliance and we expect them to follow through with their threat to move to an enforcement setting. Make an update of these contracts your priority.

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