Unfair contract terms amendments. Are you ready?24 August 2023
Major changes to the unfair contract terms legislation are coming into effect on 10 November 2023, and penalties apply if you get it wrong. You need to be ready.
Late last year Federal Parliament approved a series of amendments to the existing unfair contract terms (UCT) regime embedded in the Australian Consumer Law (ACL) and Australian Securities and Investments Commission Act 2001 (ASIC Act) through a Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (UCT Amendments). These amendments take effect on 10 November 2023.
The UCT Amendments aim to provide broader protection to consumers and small businesses. UCTs are contractual provisions that significantly disadvantage consumers and smaller businesses, leading to imbalances in bargaining power, exploitation, and often harmful economic consequences.
In the first of three short articles, will look at how the UCT Amendments operate and their impact on you by examining:
- Who (and what) the amendments will impact
- What is an unfair contract term?
- Why does it matter (implications)?
The definition of “small business” is being expanded from a business employing less than 20 people, to one that has under 100 employees or less than $10 million in annual turnover in the previous income year. The “or” here is important – a business only needs to meet one of these tests to be protected.
In deciding what is an “employee”, the UCT Amendments exclude casual employees, and part-time employees are counted as a proportion of their full-time equivalent. It is not always easy to determine how many employees a business has – for example, contractors employing over 100 seasonal tradies may still qualify.
Standard form contracts
These are usually understood as a set of standard terms and conditions issued on a repetitive basis to many different people. Frequently a contract is drafted by one party and might be presented to the other in a “take it or leave it” manner. Contracts of this nature are presumed to be standard form contracts. The onus to disprove this assumption lies on the party that drafted the contract.
The UCT Amendments now also limit the factors courts may consider in assessing whether a contract is a standard contract or not. It might still be a standard form contract if negotiated changes are minor, or the choices presented to the counterparty are limited to pre-set options. Purchase orders might also be standard form contracts under the new rules and could therefore contain UCTs.
Work out if you use “standard form contracts” in your business (including purchase orders). You might need to revisit contracts previously classified as not standard forms because they had a few negotiated changes.
Review your suppliers’ network and work out whether they are “small businesses”. You can check their website or LinkedIn to get a rough idea or engage a company reporting agency like Illion. Asking the supplier is also a good idea.
In our second article, we will focus on what terms of your standard form contracts you might want to review i.e., what might be an unfair contract term. This is critical because penalties can now be imposed for contravening the new UCT regime.