The Government released draft legislation yesterday in relation to extending the unfair contract term protections to small businesses. 

Once the legislation has been passed, a court will have the ability to declare an unfair term in a standard form small business contract void. Under the proposed legislation, a contract will be a small business contract if:

  1. at least one party to the contract employs less than 20 employees; and
  2. the upfront price payable under the contract is less than $100,000 or less than $250,000 for contracts that extend for more than 12 months.

Unlike the current unfair contract term regime, the proposed legislation does not restrict the application of the regime to contracts that are for the supply of goods or services. Therefore, it is proposed that the new regime will apply to all contracts, unless the regulations specifically state otherwise.  Importantly, regulations will only be made to this effect if the small business is covered by other laws that provide equivalent protection. This therefore offers small businesses with significantly more protection that what is even offered to consumers under the Australian Consumer Law.

The definition of a standard form contract will remain the same. That is, a standard form contract is a contract that is offered on a take it or leave it basis.

Additionally, test used to determine whether a term is unfair will not change. That is, a term will be unfair if that term:

  1. causes a significant imbalance between the parties rights and obligations;
  2. would cause detriment to a party if it were to be relied upon; and
  3. is not reasonably necessary to protect the legitimate interests of the party advantaged by that term.  

A copy of the draft legislation can be found here.

All interested parties, including small businesses, are invited to make submissions on the exposure draft and comment on whether the interests of small businesses are being met by the draft legislation.

If you would like more information about the proposed legislation and how it may impact your business, please contact Joanne D’Andrea or Nicole Stornebrink.

Joanne D'Andrea
Harwood Andrews
T: 03 5226 8567

Nicole Stornebrink
Harwood Andrews
T: 03 5225 5209