Protection of small businesses against unfair contract terms moved one step closer yesterday following the support by the Senate of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. 

In more good news to small business, support was only given by the Senate after some important amendments were made to the Bill.

Our review of the Bill on its introduction into Parliament can be found here.

Size and Length of Contracts

The amended Bill increases the coverage of the legislation to cover contracts with an upfront payment not exceeding:

  • $300,000 for contracts up to 12 months long (previously the amount was capped at $100,000); and
  • $1 million for contracts greater than 12 months (previously the amount was capped at $250,000).

The new higher caps address criticism that businesses would be able to manipulate contract terms and payments to exceed the originally proposed threshold amounts. The increased amounts will necessarily increase the number of small business contracts that will be covered in the future. In fact, it has been estimated that the operation of the legislation, as amended, will offer protection to 95% of small businesses.

Application to Businesses

The Bill extends the unfair contract term provisions to small business contracts where at least one of the parties to the contract is a business that employs fewer than 20 people. The definition of employees has been clarified and will include:

  • full-time employees;
  • part-time employees; and
  • casual employees who work on a regular and systematic basis.

Employees that fit within any of these categories will be counted towards the number of employees of the business, regardless of the hours or workload of the employee.

Transitional Period

It was not all goods news for small business, however, with the period being given to businesses to get ready for the new law being extended from six months to 12 months.

It follows that, in the event the Bill becomes law, small business will have to wait a further 12 months before the law will begin to apply to:

1.             new small business contracts;
2.             existing small business contracts that are renewed; and
3.             terms in existing small business contracts that are varied.

What Happens Now?

The Bill, as amended, will now be reconsidered by the House of Representatives.

In the meantime, any business that deals with a small business should ensure that their Standard Form Contracts are reviewed to determine whether any of the terms of their contracts risk being deemed unfair.

If you would like more information regarding the Bill, or would like your Standard Form Contracts reviewed, please contact:

Joanne D’Andrea
Harwood Andrews
T: 03 5226 8567

Alasdair Woodford
Harwood Andrews
T: 03 5225 5217