The Australian Competition and Consumer Commission has outlined areas for concern over fair contracts in seven Australian business sectors ahead of new protections for small businesses, which come into effect tomorrow.
From November 12, the Australian Consumer Law will be extended to protect small businesses from unfair contract terms, after years of advocacy among members of the small business community.
From Saturday small businesses with fewer than 20 employees will be protected from clauses that give one party more power over the terms and termination of a contract than the other, provided the value of the contract is $300,000 or less a year or worth $1 million or less over three years.
ACCC deputy chair Michael Schaper told SmartCompany this morning that no matter what area of business their in, small business owners are vulnerable to unfair contracts.
“There are some big trends right across Australia and then every industry has its own issues as well,” he says.
“This applies to new contracts signed from tomorrow, but also if your contract is being renewed [after November 12]. If you’re starting something, don’t sign anything today – wait 24 hours and this will give an extra layer of protection.”
The sectors the ACCC has been reviewing
In preparation for the changes, the ACCC called on Australian businesses to voluntarily supply sample contracts so that key issues that affect each industry could be identified. Companies including Qantas, Baker’s Delight, Optus and some retail landords participated in the review, with Schaper saying several were open to reviewing contract terms when potential problems were pointed out by the commission.
“I want to give them some due recognition, both the shopping centre council and the shopping centres themselves have done this,” Schaper says.
The regulator has now released a report, based on this review, highlighting examples of potential breaches of the new laws in sectors including advertising, telecommunications, agriculture, waste management, independent contracting, franchising and retail leasing.
In the retail sector, the commission found tenants were vulnerable to unfair terms, including when shopping centres and landlords were able to vary the terms of a lease without giving notice. In the course of the writing of the report, some contracts were amended voluntarily on the advice of the commission.
Schaper says the ACCC has also witnessed a trend towards independent contractors being forced to assume responsibility for entire projects over which they only have a limited amount of control.
“The ACCC identified numerous indemnity clauses that raised potential concerns, the most common being terms that required the contractor to indemnify the larger business even to the extent that the larger business caused or contributed to any loss or damage,” the commission said in its report.
In the advertising and publishing sectors, the ACCC found many small businesses get caught out by bigger businesses that want to vary the terms of an agreement without giving notice.
“When you actually talk to them, you find people are really trying to cover every contingency,” Schaper says.
“But what it looks like on paper is [one party saying] ‘we can move things wherever we want’.”
Agriculture was also a key area of concern, with Schaper saying he has seen some contract terms in the space that really overreach.
“There’s a classic in that area – where one [contract] said ‘we can come onto your farm at any time’,” he says.
“And you sit there and go ‘have you ever thought this is a little bit excessive?’”
Businesses are reminded that for contracts commenced prior to November 12, 2016, and that approach renewal after that date, the new laws will apply – so small business owners should be vigilant about any potential breaches that they can review with the other contract party.
The courts are charged with determining whether a term is “unfair”, but SME owners are encouraged to raise concerns with the other party first, and then consider mediation if the issue is not resolved.
The Australian Small Business and Family Enterprise Ombudsman is highlighting dispute resolution services including the small business commissioner or equivalent body in each state or territory as the first point of contact.
The ACCC’s full report into unfair contracts can be read here.