Big-business fines up to $10 million under Labor plan to give unfair contract terms teeth

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Shadow Assistant Treasurer Andrew Leigh. Source: AAP Image/Daniel Pockett.

Labor has taken another step towards strengthening its small-business platform ahead of the next election, announcing today it will outlaw unfair contract terms if elected.

The commitment is likely to please small-business advocates and the ACCC, which have been calling for stronger unfair-contract-terms legislation (UCT), amid concern the current regulation lacks teeth.

In making unfair contract terms illegal, Labor says it will introduce fines of up to $10 million for offences, which will for the first time introduce civil pecuniary penalties for large businesses.

UCT legislation was introduced in 2016, but it has been criticised since because while big businesses found to have unfair terms in their contracts with SMEs can have those contracts voided by a court, there are no penalties.

In contrast, the coalition has only committed to a review of UCT law, although it did pass reforms to improve ASIC and the ACCC’s investigative powers in October last year.

Big businesses rorting the system

Labor’s Shadow Assistant Treasurer Andrew Leigh says Australia’s current UCT laws aren’t tough enough.

Businesses are including these clauses in contracts knowing they’re on the wrong side of the law, but also figuring small businesses won’t take them on in court,” Leigh tells SmartCompany

As part of the reforms, Labor will also expand the number of small businesses protected by UCT legislation if elected and consult on a review of the definition of a standard-form contract.

Currently, firms with fewer than 20 employees and annual contract thresholds of $300,000 or less are covered by the law, but Labor will increase this to a $1 million threshold for year-long contracts or $5 million for longer ones.

Advocates welcome policy

Australian small business and family enterprise ombudsman (ASBFEO) Kate Carnell, Council of Small Businesses of Australia (COSBOA) chief executive Peter Strong and the ACCC have been campaigning for tougher laws.

Strong described Labor’s announcement as a great move for small business.

“Small-business people are by the nature trusting and optimistic, otherwise they wouldn’t go into business, and some big businesses take advantage of that and betray the trust — the biggest landlords being the worst offenders,” he tells SmartCompany.

ACCC chair Rod Sims complained last year that while the regulator could take big businesses to court over unfair contracts, there was little they could do to deter companies.

“There is little the ACCC can do to hold them to account for prior conduct,” Sims said.

“The law simply isn’t strong enough. Unfair contract terms should be illegal.”

Carnell said Labor’s policy would be a “major improvement” in protecting small businesses.

“Phase I of our Access to Justice Inquiry found small businesses are unlikely to take action when faced with an unfair contract term in their standard form contract,” she said in a statement.

“They are reluctant to damage commercial relationships, and lack the resources and time to pursue litigation.

“Any change to legislation or regulation that levels the playing field between small business, the engine room of our economy, and the larger players is worth pursuing.”

A laundry list of offenders

Corporate giants such as Visy Paper, Cleanaway and Suez were forced to review and amend their small-business contracts last year over ACCC concerns under UCT legislation.

Those contracts allowed them to unilaterally increase their prices in some circumstances and impose penalties on customers who tried to exit prematurely.

Other firms such as Equifax, ServCorp and Cardtronics have also come under the spotlight for UCT concerns.

A 2017 review of unfair contracts conducted by ASIC and ASBFEO found eight prominent small business lenders were failing to comply with UCT laws.

But Carnell subsequently complained it was difficult to get lenders on board with changing their contracts, citing a lack of incentive.

Labor builds out its small-business platform

Labor’s UCT announcement is a part of its broader Access to Justice platform and comes less than a week after a commitment to help SMEs get a bigger slice of the government-contracting pie.

After the coalition unveiled a large part of its own small-business platform late last year, including a $2 billion securitisation fund to improve access to finance and red tape reductions, it is expected Labor will fill out its own platform ahead of the election later this year.

Leigh says Labor will “absolutely” have more to say on the small-business-policy front leading into the election.

Concern about industrial-relations platform

However, there is significant concern among business owners about the prospect of a Labor government, research has indicated.

A survey of SME leaders released by Executive Connection today found confidence in the economy has fallen to the lowest point in two years.

Executive Connection surveyed 112 executives between December 1, 2018 and January 7, 2019 for the research.

Asked what impact a change in government would have on their business over the next three years, 59% of respondents said there would be a negative impact, 16% said positive, while 25% expect no impact.

Almost two-thirds (65%) of respondents don’t believe a change in government will deliver any positive differences to their business and the broader community.

The survey did not dive into what aspects of Labor’s platform businesses are wary of, but there has previously been concern about its industrial-relations platform.

Among other reforms, Labor plans to reverse Sunday penalty rate cuts for over 700,000 Australians.

Leigh says Labor is focused on getting a pay rise for Australian workers, which will in turn benefit business.

“Well-paid workers are well-paying customers, Labor wants to make sure we see a pay rise for the Australian workforce,” he says.

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READ NOW: Ombudsman, ACCC push for financial penalties for unfair contracts


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