Senate Passes Unfair Contracts Legislation: Small Business Gets Same Protections as Consumers

On Monday (14 September 2015), the Senate passed the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 (Cth) (the Bill) whose primary purpose is to ensure that small business owners have the same unfair contract protections as ordinary consumers. The measures resulted from an Abbott government election commitment to allow a court to declare void an unfair term of a contract, where the contract was valued under $100,000 for contracts lasting up to one year or under $250,000 for contracts lasting more than one year. Such measures where argued for by the government on the grounds that small businesses need "consumer like protections" because they, like individual consumers, often lacked the resources to negotiate terms and were unlikely to be able to absorb any losses when a contract proved to be unfair.

What the Bill Does

The Bill, when enacted, will extend the unfair contract term protections to small business contracts by amending the Australian Securities and Investments Commission Act 2001 (the ASIC Act) and the Australian Consumer Law (the ACL) as set out in Schedule 2 of the Competition and Consumer Act 2010 (the CCA Act).

The current provisions of the ASIC Act and the ACL mirror each others' consumer unfair contract term provisions. The ASIC Act unfair contract terms provisions apply to financial services and products, while the ACL provisions apply to the supply of goods or services other than financial services or products and the sale or grant of an interest in land. The provisions relating to unfair contracts have operated since 1 July 2010.

The amendments made by the Bill would extend the unfair contract term protections currently available to consumers to cover businesses with less than 20 employees agreeing to standard form contracts valued at less than a prescribed monetary threshold. Thus, as a result of the amendments, unfair terms in a standard form small business contracts will be rendered void and the term will be "unenforceable" and treated as if it did not exist. The contract, however, will continue to be binding on the parties if it is found that it can operate without the "unfair term".

Bill Passed Senate With Amendments

While the Bill has passed the Senate, it did not pass without amendment, with, as it is reported by SmartCompany, the Australian Greens (the Greens) winning upper house support to increase the  monetary threshold of contract values to $300,000 and $1 million.

Specifically, the amendments increased monetary thresholds for coverage from $100,000 to $300,000 for contracts up to 12 months long and $300,000 to $1 million for contracts greater than 12 months. The Greens also want to see more businesses covered by the legislation.

In detail, four amendments were proposed by the Greens and one amendment by the Liberal Democratic Party. All were agreed to by the Senate.

• Changes to the commencement: Originally it was proposed that the Bill would commence six months after it received the "Royal Assent". As a result of the amendments commencement will be delayed and the Bill will now commence 12 months after it receives the "Royal Assent".
• The definition of “small business contract” was amended so that it now covers a contract where:
• the upfront price payable under the contract does not exceed $300,000 (for contracts lasting up to one year), or does not exceed $1 million (for contracts lasting more than one year), and
• at the time the contract is made, one (or more) of the parties to the contract is a business that employs fewer than 20 persons (counting full-time employees, part-time employees and casual employees who work on a regular and systematic basis, using a headcount approach, regardless of an employee’s hours or workload).

It should be noted that the changes to the Bill require its return to the House of Representatives for consideration and approval where the government controls the numbers.

Responses to the Amendments

In reporting on the amendments, SmartCompany quotes Melissa Monks, special counsel at law firm King & Wood Mallesons, as indicating that the Senate amendments to the Bill would mean a larger number of small business contracts would now come within the ambit of the legislation and that the Senate's changes are “surprising”, representing significant increases in the monetary thresholds thus affecting whether some contracts are eligible for protection under the legislation. This then having an effect on the balance between protection and freedom to make agreements:

An agreed positive seen as resulting from the Senate's amendments, if passed in the lower house, is the increased transitional period which will move from six to 12 months giving small businesses more time to prepare for the changes.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 and supporting materials as reported in the TimeBase LawOne Service.

Senate Econmnomics Legislation Committee - Website

Unfair contracts legislation gets green light in Senate (SmartCompany 15 September 2015)

Senate amends and passes unfair contract terms small business Bill (Law Chat Blog 16 September 2015)

Protections for small business owners (SBS)