The Australian Competition and Consumer Commission (ACCC) is urging businesses to carefully review and revise their standard form contracts to eliminate or modify any unfair contract terms before new penalties come into effect.
These changes are part of amendments to the Australian Consumer Law, scheduled to take effect from November 9th. They will prohibit businesses from proposing, utilizing, or depending on unfair contract terms in standard form agreements with consumers and small businesses.
Under the revised regulations, courts will have the authority to impose significant penalties on businesses and individuals found to include unfair terms in their standard form contracts. Previously, courts could only declare specific contract terms as unfair and void. ACCC Deputy Chair Mick Keogh emphasized the importance of these changes, stating, “The changes to the unfair contract terms laws should motivate businesses to take steps to ensure their standard form contracts are fair, including by removing or amending concerning terms.”
Standard form contracts are widely used by businesses as a cost-effective means of engaging with a large number of consumer or small business customers. However, these contracts are typically presented on a ‘take it or leave it’ basis and are often crafted to benefit the party offering them.
Mr. Keogh clarified that the criteria for determining whether a contract term is unfair remains unchanged, but the penalties for non-compliance are now more substantial. This shift aims to protect consumers and small businesses who typically lack the bargaining power, expertise, or capacity to negotiate or evaluate standard form contracts. While some of these changes may not apply to existing contracts until renewal or the creation of a new contract, businesses are strongly encouraged to proactively review their standard form contracts.
“There was previously little motivation for businesses to comply with the law, despite the ACCC’s compliance and enforcement actions. We strongly urge businesses to review their contracts now to ensure they comply.”
Standard form contracts provide a cost-effective way for many businesses to contract with significant volumes of consumer or small business customers. However, these contracts are largely imposed on a ‘take it or leave it’ basis and are usually drafted to the advantage of the party offering them.
“The test for whether a contract term is unfair has not changed. However, businesses now could potentially face substantial penalties for contravening the law. This will better protect consumers and small businesses who have limited bargaining power, expertise, and ability to negotiate or assess standard form contracts,” Mr Keogh said.
“While some of the changes won’t apply to contracts until they are renewed, or a new contract is entered into, businesses should be proactive in reviewing their standard form contracts now.”
Tips for SMEs to consider when reviewing contracts
- Consider Both Perspectives: Assess whether a term, which you believe is necessary for protecting your business’s interests, is also fair from the other party’s perspective.
- Include Counter-Balancing Terms: Ensure your contract contains appropriate counter-balancing terms. For instance, if your business needs the ability to unilaterally modify the product or service, make sure the contract allows customers to exit without penalty in such cases.
- Avoid Broad Terms: Refrain from using overly broad terms. Ensure terms are only as expansive as necessary to safeguard your business’s legitimate interests.
- Comply with Australian Consumer Law: Do not include terms that attempt to evade your business’s responsibilities under the Australian Consumer Law, such as limiting consumer guarantees rights or disclaiming representations made outside the contract.
- Clarity and Transparency: Use straightforward language in your contracts, and ensure that key terms are conspicuously highlighted during the signing-up and renewal processes.
These changes will also expand the coverage of unfair contract term laws to encompass more small business contracts. The threshold for small business contracts will be broadened to include businesses employing fewer than 100 individuals or having an annual turnover of less than $10 million.
Additionally, the updated regulations eliminate the contract value threshold and provide further clarification on various aspects of the laws, including a more precise definition of ‘standard form contracts.’
Businesses can access information about these changes on the ACCC’s official website.
Background: The ACCC has long advocated for penalties against unfair contract terms, and this advocacy includes submissions to the Government’s review of unfair contract term protections in 2018 and the regulation impact assessment process in 2020. Penalties for unfair contract terms were also a key recommendation in the ACCC’s 2020 Perishable Goods Inquiry and digital platform services inquiry.
Recent actions by the ACCC related to unfair contract terms include:
- In 2023, suppliers in the fertiliser industry amended their contracts following an ACCC investigation into unfair contract terms.
- In 2022, Fowler Homes Pty Ltd entered into a court-enforceable undertaking with the ACCC, acknowledging unfair contract terms in its standard home building contract.
- In 2022, the Federal Court declared 38 contract terms used by Fujifilm Business Innovation Australia and Fujifilm Leasing Australia (collectively, Fuji) with many small businesses as unfair, following ACCC legal action.
- Funeral service providers Parkside Funerals and Bowra & O’Dea committed to removing potential unfair terms from their funeral services contracts, among other commitments, in court-enforceable undertakings with the ACCC.
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