The Australian Competition and Consumer Commission intends to take a number of big businesses to court this year for subjecting small businesses to grossly unfair contract protections.
The federal government’s unfair contract protections for small business came into effect in November 2016 and ACCC chairman Rod Sims told SmartCompany large corporates using unfair contract terms in the services and agriculture sectors are at the top of the watchdog’s hit list.
Sims spoke to SmartCompany about the ACCC’s priorities ahead of a keynote address to a Committee for Economic Development of Australia (CEDA) event on Friday.
Ensuring small businesses are protected from unfair contract terms is one of those priorities, with Sims to tell the CEDA event that research suggests close to two thirds of small businesses have “experienced harm as a result of unfairness in contract terms and conditions that they have signed”.
“It’s fair to say from the behaviour we’ve seen so far, the government is certainly more than justified in making that legislative change,” Sims told SmartCompany.
“We are looking at some amazing clauses that clearly do small business great harm, and we’re looking to get those to court.”
The unfair contract protections aim to protect small businesses with fewer than 20 employees from clauses that give one party more power over the terms and termination of a contract than the other.
The protections apply to 12-month contacts worth $300,000 or less, or multi-year contracts worth up to $1 million over three years.
According to Sims, some large organisations have already amended contracts following the enactment of the new law, including Australia Post and Optus, however, he expects contracts in the services and agriculture sectors are likely to be the subjects of the first actions.
But unfair contract terms are not confined to those sectors—Sims says the use of unfair contracts that are detrimental to small businesses is widespread—and these contracts are also not necessarily always between very large businesses and small suppliers; there are also being used by medium size companies that work with small businesses.
“One case I can think of involves a very large company, but there is another where you would describe the company as being of medium size,” Sims says.
“There is always an imbalance because the companies on the receiving end are quite small.”
Separately, Sims says the ACCC will also work throughout the year to determine if other contract terms may also be covered by the legislation in order for the regulator to “use the law to full effect”.
These include delayed payment terms, automatic roll-over provisions, and exclusivity clauses, says Sims.
“They could well have an unfair contract angle,” he says.
Priorities for 2017
Protections from unfair contracts are not the only legislative changes on the ACCC’s radar this year, with the regulator also focusing on enforcing the new rules around credit card surcharges.
A ban on excessive surcharges came into effect for large businesses in September 2016, with the same rules to be extended to businesses of all sizes come September this year.
However, Sims says it’s the big end of town in the ACCC’s crosshairs.
“Our focus is on very large companies at this stage,” he says.
“We all know the surcharge legislation came in because the behaviour of some in the airline sector was not good and they had plenty of warning to change, in my opinion.
“So we will certainly looking closely at those areas and related areas.
“For us to take action against a small business, [the behaviour] would have to be blatant. We won’t be getting out a calculator and doing precise calculators … as long as they are trying to do the right thing.”
Meanwhile, the ACCC says its 2017 priorities also include educating businesses and consumers about new country of origin labelling laws, as well as addressing consumer issues in the private health insurance and car retailing sectors, and where commission-based sales practices are used.
With approximately 200,000 reports of possible breaches of competition and consumer laws each year, the ACCC says it must prioritise where it focuses its investigations and enforcement actions. Of those reports, around 500 are investigated and this in turn leads to approximately 30 court actions.
Sims says the ACCC will continue its efforts to ensure small businesses are protected under a number of industry codes of conduct, including the Franchising Code, the Food and Grocery Code and the Horticulture Code.
“I’ve certainly head stories about horticulture growers in appalling positions … we’ll be doing all we can to make sure the protections in the code protect them in the way they are designed too,” he says.
Companies can also expect the ACCC to pay close attention to consumer guarantees this year, particularly in relation to services, and Sims says again the focus will be on holding the big end of town to account.
In areas like telecommunications, there are “certainly benefits for small businesses” if consumer guarantees are enforced, Sims says.
“We may well be trying to help small businesses in the sense that if they have been on the receiving end of not having their broadband working for a long time, we’ll take a good look at if how that is handled by telecommunications companies aligns with consumer law,” he says.
Small businesses are currently protected by the Australian Consumer Law (ACL) for purchases of goods and services up the value of $40,000, however, Sims says this threshold could increase as a result of the ongoing review of the ACL, which will continue throughout the year.
It is one of the potentially “exciting” developments for the ACCC, Sims says, along with other proposals from the Harper competition review, which are expected to come before Parliament this year.
“Section 46 is there, but there are some other changes as well,” Sims says, in reference to the introduction of an effects test.
“Hopefully, parliamentarians make it a priority to pass those changes.”