Government drags heels, confirming unfair contracts consultation for late-2019

unfair contracts

Assistant Treasurer Michael Sukkar. Source: AAP Image/Mick Tsikas.

Businesses waiting for the federal government to move forward with outlawing unfair contract terms (UCT) would be unwise to hold their breath.

A spokesperson for Assistant Treasurer Michael Sukkar has confirmed a pending consultation process which will consider whether unfair terms should be made illegal won’t take place until “late-2019”, setting the stage for further delay in legislative action.

The government said it would seek to strengthen UCT laws before the election in March, but did not commit to outlawing the terms, instead announcing a consultation and regulatory impact process.

Almost four months later, the re-elected Coalition government has come under renewed pressure to move ahead with the process after UberEats became the latest large firm to come under ACCC scrutiny for allegedly unfair terms of its own.

UberEats earlier this week agreed to amend its restaurant terms to ensure its small business partners weren’t left holding the bag for meal refunds they have no control over.

The ACCC and small business advocates across the country, including small business ombudsman Kate Carnell, have been calling on the government to strengthen UCT laws for more than a year, following a string of cases where large firms have escaped penalties.

Under current laws introduced in 2016, unfair contract terms are not illegal, which means the ACCC can ask the court to void contracts which contain unfair terms but cannot pursue civil penalties.

UberEats escaped without a fine earlier this week, while other large firms, including Visy Paper and JJ Richards, have also been forced to amend their contracts in recent years, but have also avoided fines.

A spokesperson for Assistant Treasurer Michael Sukkar on Thursday said consumers, small businesses and industry stakeholders will be notified when the consultation starts.

“Treasury is preparing for RIS public consultation, which is expected to commence in late-2019,” the spokesperson said.

“Consultation through a RIS process is required because the proposed options are likely to have an impact on businesses, and consultation is mandated under the Intergovernmental Agreement for the Australian Consumer Law.”

While the government has committed to “further strengthen” UCT laws, it has not yet promised to make them illegal. The Assistant Treasurer was asked to clarify the government’s position on Wednesday.

The government’s own review of UCT laws late last year concluded the current legislative framework “does not afford appropriate protections to many small businesses”, while others have argued a lack of penalties has given large firms little incentive to be proactive about the issue.

Further, the government has been repeatedly warned by its own regulators and others during past UCT consultation about the danger of reforms that lack teeth.

In 2014, Consumer Affairs Australia and New Zealand (CAANZ) warned big firms may not review or alter existing contracts if UCTs were not prohibited.

“It is noted that, consistent with the existing consumer UCT provisions, this legislative option would make UCTs void. It would not prohibit the existence of UCTs outright. As a consequence, some businesses may decide (risk assessment) not to review terms, or alter existing contracts, given the legislation would not penalise a business for mere inclusion of the term,” it said.

Corporate regulator ASIC also touched on the problem in consultation about extending unfair contract terms to insurance contracts last August.

“Having penalties attached to a prohibition would have a strong deterrent effect against the use of unfair contract terms and would give the relevant regulators appropriate powers to address these terms,” ASIC said.

The Business Council of Australia, among other lobby groups, was opposed to the initial extension of UCT laws to business contracts during consultation in 2015.

Small business advocates are now urging the government to move forward with outlawing unfair contract terms.

“It’s disappointing it has not been done sooner,” Victorian small business commissioner Judy O’Connell tells SmartCompany.

“This is a big issue. It’s good the ACCC is trying to work with businesses, but there’s no incentive not to have unfair contracts.”

“If there was a penalty I’d say unfair terms would decrease dramatically.”

Jenny Buchan, a UNSW Business School professor and franchise law expert, describes the current laws are “hugely inefficient”.

“The ACCC has had mixed results in the approach of gentle persuasion, they have experienced some businesses that have been responsive, but others that have arrogantly refused to amend contracts containing UCT,” Buchan tells SmartCompany.

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