In business, encountering unfair contracts can be a frustrating reality for small business owners. Many find themselves in agreements where the terms heavily favour the service provider, leaving them disadvantaged. However, with the proper knowledge and approach, it’s possible to identify unfair clauses and negotiate fairer terms. In this blog post, we will explore how to determine if a supplier’s contract is unfair and provide actionable tips to help you secure fairer agreements.
Recognising Unfair Contract Clauses
The first step in dealing with unfair contracts is understanding the signs of unfairness. While each contract is unique, some common red flags may indicate an imbalance of rights and obligations. Look out for clauses that excessively limit your legal recourse, impose one-sided indemnity provisions, or unreasonably restrict your ability to terminate the contract.
TIP: Engaging a small business lawyer to review contracts can help identify such unfair terms more effectively.
Identifying Small Business Contracts and Unfair Terms
To protect your business interests, consider engaging a small business lawyer to review all your and your supplier contracts. A supplier contract is a contract offered to you by someone providing a service to your business.
Lawyers specialising in small business contracts possess the expertise to identify unfair clauses and negotiate more favourable terms on your behalf. Their knowledge of contract law and industry standards can prove invaluable in levelling the playing field.
TIP: Choose a lawyer whose expertise is in small business so they better understand your priorities and concerns.
Evaluating Applicability of Unfair Contract Provisions
Understand the applicability of unfair contract provisions. Certain types of contracts, such as those related to shipping, constitutions of companies, or medical indemnity insurance policies, may not fall under the purview of unfair contract terms legislation. However, Unfair Contract Provisions can offer protection for small business contracts.
TIP: If you’re not sure if the Unfair Contract Provisions apply to your contracts, it’s time to seek legal advice.
Assessing Small Business Contracts
When reviewing a supplier contract, determine if it qualifies as a small business contract. Consider factors such as the size of your business (employing fewer than 20 persons or having a turnover of less than $10 million) and the upfront price payable (less than $300,000 or $1 million if the contract duration is longer than 12 months). If these criteria are met, your business may be eligible for the protection provided by unfair contract terms legislation.
TIP: If the contract was entered into before 12 November 2016 (5 April 2021 for insurance contracts), then unfair contract protections do not apply. This includes variations or renewals of contracts.
Understanding Unfair Contract Terms
To establish whether a contract term is unfair, consider three key criteria:
- Significant Imbalance: The term must cause a significant imbalance in the rights and obligations of the parties involved.
- Lack of Necessity: It should not be reasonably necessary to protect the legitimate interests of the party that drafted the contract.
- Detrimental Impact: The term should result in detriment to the disadvantaged party, whether financial or otherwise if applied or relied upon.
Negotiating Fairer Contract Terms
If you identify unfair clauses, it’s crucial to enter into negotiations with your supplier. Here are some effective strategies:
- Clearly Identify Unfair Clauses: Point out specific clauses you find unfair and explain why they create an imbalance.
- Provide Alternative Solutions: Propose revisions or alternative terms to create a more equitable agreement.
- Highlight Long-Term Benefits: Emphasise the potential for a stronger and more sustainable relationship by ensuring fair terms.
TIP: When negotiating contract terms, it pays to engage a lawyer who understands the impacts of the changes you request.
Making Contract Review a Best Practice
To avoid future issues, develop a practice of reviewing contracts before signing them, and make it a regular part of your new financial year planning. Engage your small business lawyer to conduct thorough reviews and provide guidance on legal implications and potential risks.
Dealing with unfair contracts requires vigilance, knowledge, and proactive negotiation. You can achieve fairer agreements that protect your business interests by understanding the signs of unfairness, engaging a small business lawyer, assessing contract applicability, evaluating terms, and negotiating with suppliers. If you’re concerned about the terms of your contracts or that of your suppliers, book a Legal Contract Review with me ASAP.