Here’s something essential you might not be aware of: the legal landscape for small business owners is shifting. The Australian Competition and Consumer Commission (ACCC) is sending out a clear message – it’s time for businesses to revisit their standard form contracts with a laser focus on eliminating unfair terms. Come November 9, 2023, hefty penalties will be enforced. It’s crucial for small business owners to remain well-informed and take proactive steps to ensure their business practices comply with these emerging legal standards.
These penalties introduce a significant shift in Australian Consumer Law by targeting businesses that propose, use, or rely on unfair contract terms in standard form contracts with consumers and small businesses. Unlike the previous approach, where only specific contract terms could be deemed unfair by the courts, the new laws impose stringent penalties.
Businesses found guilty could face a maximum penalty of $50,000,000 or three times the value of the benefit obtained from the conduct, with a 30 per cent of adjusted turnover penalty in case the court can’t determine the benefit. For individuals, the maximum penalty is $2.5 million.
What’s a Standard Form Contract?
Standard form contracts are ready-made agreements, usually used by businesses when they offer services or products to consumers. They’re typically non-negotiable and presented on a ‘take it or leave it’ basis. These contracts are usually offered one-size-fits-all without accommodating individual variations.
There is nothing wrong with these agreements, per se, however, this inflexibility can sometimes lead to terms that, while benefiting the business, can be deemed unfair or unreasonable to the other party involved, especially consumers or small businesses. This is why ensuring these standard form contracts comply with fairness standards is paramount.
Critical Tips for Small Business Owners
To navigate these changes and ensure that your business is on the right side of the law, here are some critical considerations for small business owners when reviewing their standard form contracts:
- Consider Both Sides: Look at your contract terms from not only your business’s perspective but also that of the other party involved. Strive for a balance that protects your interests without unfairly burdening the other party.
- Include Counter-Balancing Terms: Ensure that your contracts feature counter-balancing terms. For instance, if your business needs the ability to make unilateral changes to the product or service provided, the contract should also allow customers to exit without penalties in such situations.
- Avoid Overly Broad Terms: Contract terms should not be excessively broad but only as expansive as necessary to protect your business’s interests.
- Compliance with Australian Consumer Law: Contracts should not attempt to evade the obligations stipulated in the Australian Consumer Law. Avoid terms that limit customer rights or disclaim any representations made by your business outside the contract.
- Clarity and Transparency: Use clear and straightforward language in your contracts. Ensure that essential terms are prominently highlighted during the sign-up and renewal processes.
TIP: Avoiding legal jargon in your contracts will make them easier for everyone to understand and agree to.
In addition to addressing these specific points, the amendments will expand the reach of unfair contract term laws to cover more small business contracts. The threshold for small business contracts will now encompass businesses with fewer than 100 employees or annual turnovers below $10 million. Furthermore, the contract value threshold has been removed, and definitions of ‘standard form contracts’ have been clarified.
Staying informed and compliant with these changes is essential for small business owners. This regulatory shift highlights the significance of fairness and transparency in business dealings, protecting consumers and small businesses from unjust contract terms.
For businesses seeking more detailed guidance on these changes, the ACCC’s website offers additional information. Alternatively, engaging with an experienced business lawyer, like me, can provide tailored advice and support. The reality is, many small business owners don’t know how to objectively review their contracts effectively. The clock is ticking, so there’s no time like the present for small business owners to review and amend their contracts to align with these new legal standards.