Protect small businesses from unfair contracts

Has another business offered you a standard form contract? Or maybe you offer standard form contracts to other businesses?

If so, you need to be aware of a new law that protects small businesses from unfair contract terms.

The new law takes effect on 12 November 2016, so make sure you understand how your rights and obligations will change!

Who does the new law protect?

The new law will protect you if you're a small business with fewer than 20 employees and you enter into or renew a standard form contract:

1. on or after 12 November 2016

2. valued up to $300,000 ($1 million if the contract is for more than 12 months).

What is a standard form contract?

A standard form contract is an agreement where:

1.the terms and conditions are set by the other business, and have little or no opportunity to negotiate the terms of the contract.

In other words, they're offered on a 'take it or leave it' basis.

Standard form contracts are commonly used across a range of industries. Most of us have entered into one for mobile phone plans, insurance policies, credit cards or utility services.

How will the new law protect my business?

Under the new law, a court or tribunal will be able to cancel a contract term it finds unfair. This means your business won't need to meet that term because it will be treated as if it never existed. The rest of the contract will remain in effect if it complies with the new law.

What is an unfair term?

A term may be unfair if it:

1.causes a big imbalance in the rights and obligations of each business

2. isn't needed to protect the interests of either business, and

3. would cause harm to a small business if it was kept in the contract.

For example, a term may be unfair if it allows one business, but not the other, to:

1.change or cancel the contract

2.limit or avoid their obligations

3.breach the contract without penalties.

The new law doesn't apply to terms that set the price to be paid under a contract.

Find out more

If you're a small business, make sure you understand the new law and how it will help you.

If you offer standard form contracts to small businesses, start reviewing your terms and conditions to make sure you're doing the right thing.

Be informed now! Take a look at the ACCC's information about unfair contract terms .

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