The unfair contract legislation is a big deal

The Australian, August 10, 2016

The new unfair contract legislation, due to come into operation in three months, will affect far more contracts than originally predicted.

The Australian Competition and Consumer Commission’s Dr Michael Schaper has submitted advance papers to a conference that is taking place in Melbourne over the next few days organised by the Small Enterprise Association of Australia and New Zealand (SEAANZ). Schaper’s paper reveals that we are looking at millions of contracts being impacted by the legislation.

Previously, I had estimated that there would be several hundred thousand contracts affected.

That means that millions of standardised contracts, that were not negotiated, will have clauses that are void and will need to be changed.

However, the legislation stipulates that the overall contract will remain valid — only the unfair provisions will be void.

Accordingly, there is now no doubt that the unfair contract legislation will herald the single biggest change in the way Australian enterprises do business for decades.

It is the Turnbull government’s major achievement, although the legislation was also passed with the support of the ALP, the Greens and the crossbenchers in the old Senate.

The legislation comes into operation on November 12 and covers standard form contracts where there has been no negotiation and where one of the parties has less than 20 employees.

To be covered by the legislation, the upfront price in the contracts must not exceed $300,000 for one year ($1 million for multi-year contacts).

There are 2.1 million small enterprises in Australia and on average the ACCC research shows that a majority of small business were offered eight standard form contracts each year. For the most part they don’t have the expertise to review the contracts and spend very little time on that task.

Dr Schaper says that research shows that 60 per cent of the 2.1 million businesses claim they have experienced unfairness due to contracts and 44 per cent have experienced some harm as a result of the unfair terms.

The ACCC will concentrate its initial efforts on areas like shopping centres, independent contractors, advertising, telecommunications contracts and franchising. But will then move onto other areas, including the supply of goods and services and standardised finance contracts, particularly business bank loans.

These remarks from Dr Schaper are from his prepared material which was presented at today’s conference.
Following my chairing the session, I can reveal that the following additional facts emerged:

*The unfair contract act will only apply to contracts signed tafter November 12, 2016. All those looking to sign contracts between now and that date should seek to delay them.

*The act will apply to government trading enterpresies like Auspost but not government departments.

* The ACCC’s initial approach will be to “jawbone” corporations to bring their contracts into line with the act. Later they will consider launching specific court cases.

* The ACCC was urged to “name and shame” those firms that dragged their feet, but Dr Schaper said that the ACCC would need to be precede carefully in that area because it could impact on court cases.

* The act may cover the outrageous paying of bills by large corporations but that’s not certain.

I will keep readers informed of further developments.

As readers will know, I have written extensively on this subject in the part.

At least 1.5 million people are likely to be affected by the legislation.

It could be a lot more. I do not think Australia’s large enterprises, including government organisations, fully understand the impact of the legislation that was passed on November 12, 2015. Almost every single one of these large firms and government bodies will be affected by the changes.

In the short term there will be considerable disruption but in the longer term the smarter enterprises, including government enterprises, will review their contracts and the legislation will make them a lot more productive. And remember it is our smaller enterprises that will be the big employers of the future. If they have fair contracts they will employ a lot more people — indeed, this was the reason why the legislation was passed.

In past coverage of the legislation, with the help of the Independent Contractors Association’s Ken Phillips, I set out the standard small business contract clauses that will be declared ‘unfair’ if they give one party (but not the other) the ability to:

  • •Avoid or limit the performance of the contract.
  • •Terminate the contract.
  • •Apply penalties against the other party for a breach or termination of the contract.
  • •Vary the terms of the contract.
  • •Renew or not renew the contract.
  • •Vary the price payable under the contract without the right of the other party to terminate the contract.
  • •Unilaterally vary the characteristics of the goods or services to be supplied under the contract.
  • •Unilaterally determine whether the contract has been breached or to interpret its meaning.
  • •Limit one party’s vicarious liability for its agents.
  • •Permit one party to assign the contract to the other party’s detriment without their consent.
  • •Limit one party’s right to sue the other party.
  • •Limit the evidence one party can adduce in legal proceedings in respect to the contract.
  • •Impose the evidential burden on one party in legal proceedings in respect to the contract.

The ACCC website includes some essential background reading and more details can also be found in these past articles:

(A wake-up call for big business, Jan 4), (How Parliament has revolutionised the rules of contracting, December 2) and this report by Ken Phillips, executive director of Independent Contractors Australia, (A welcome disruption to the economy, December 1)