Taking aim at unfair contract terms for small business

Fairer contract terms would help small business flourish. Picture: AAP
Fairer contract terms would help small business flourish. Picture: AAP
The Australian,

How do we stimulate the economy? The Reserve bank has only one weapon in its armoury: lower interest rates. But all around the world we are confirming that while lower rates boost asset prices, when rates are low or negative, if anything, they depress the economy. We will almost certainly have lower rates in February, but they will not stimulate the economy and may depress it.

Big tax cuts work, but they are not on the agenda and infrastructure projects take an age and both Melbourne and Sydney already have big pipelines. Rain in our farmlands and a big rise in world economic activity would work but that’s out of our control.

But the government has a secret weapon to boost the economy but unfortunately because it was not taught to classic economists it has so far been discarded.

Out of ideas

But the people at the top are out of ideas, so innovative low-cost measures that will work are moving to centre stage. And the best of these ideas and the one that will transform the nation is to move cash around the business community at a faster pace with greater reliability. It will work because it will promote cash flow lending by banks and greater prosperity among those who hire — small and medium business. The process requires a number of fundamental changes of which faster payment of debt is crucial as is proper administration of our tax laws. The government’s new Australian Business Growth Fund will also help.

But none of these steps will work while the bad culture that wrecked banking and wealth management, and which has seeped into the entire big business community, remains untreated.

READ MORE:10 reasons it’s rough right now|Are we playing our cards right?|Fairer system not that taxing

I am of course talking about the activities of most of Australia’s large corporations who demand small and medium businesses sign contracts that give the large company the unfettered right to change the terms and pricing of the contract (including cancelling it) while the small business party has no such right.

The parliament tried to outlaw this unfair bullying game with all the political parties agreeing. And the action was taken before we knew about the banking scandals.

But on the advice of their lawyers, large companies told our elected representatives to jump in the lake. It was an illustration of how the bad banking culture extended through the business community, with severe repercussions to employment and economic growth. .

In that context, tucked away in the avalanche of announcements that come out at this time of year was proposal that potentially can really help boost employment in the economy and shows that parliament does not like to be made a fool of.

Minister for Employment, Skills, Small and Family Business, Michaelia Cash and Assistant Treasurer, Michael Sukkar declared: “The Morrison Coalition Government is committed to protecting small businesses from unfair contract terms.”

They announced the commencement of public consultation on options to further enhance unfair contract terms protection.

Cash and Sukkar are looking at consultation to explore options to strengthen the existing protection for small businesses from unfair terms in standard form contracts.

“The consultation will seek feedback on a range of options, including making unfair terms illegal, attaching penalties for breaches, and broadening the coverage of small business contracts” the statement said.

Between now and March 16 every big legal firm lawyer in town will demand that their clients have the right to be able to hit small enterprises and earn the lawyers big fees.

ACCC chief Rod Sims has been appalled at the lack ethics among too many of the boards of our larger enterprises in this area.

Weak laws

Sims has told the government what’s required to use this tool to boost the economy:

“The Australian Consumer Law currently allows a potentially unfair contract term to be challenged in a court so it can be declared void, but it does not prohibit such a term being included in a contract in the first place,” he said.

“Companies can include potential unfair contract terms in their contracts and when, and only when, challenged by the ACCC, can companies remove them from their standard contracts. There is little the ACCC can do to hold them to account for prior conduct. Neither can the ACCC issue infringement notices for unfair contract terms.

“The regime has two significant flaws: first, unfair contract terms are not illegal, and second the ACCC cannot seek penalties when the court has declared an unfair contract term void, nor can we issue infringement notices for contract terms that are likely to be unfair.”

“The law simply isn’t strong enough. Unfair contract terms should be illegal. As it stands, no real incentive exists for businesses to ensure their standard contracts do not contain such terms, which really means they have incentive to include them and see if they can get away with it.

This is out of step with other provisions in the Competition and Consumer Act 2010, and Australian small businesses are the ones paying the price.”

Cash and Sukkar not only have the ability to help boost the economy when conventional measures are failing, but also improve the ethics of the larger business community.