Changes to the Unfair Contract Terms (UCT) regime will commence from 9 November 2023. The changes broaden the regime to now include ‘small business contracts’ – a standard form contract where at least one of the parties has less than 100 employees or less than $10 million turnover in the last financial year. Under the changes, a contract will be presumed to be a standard form contract unless otherwise shown.
What is an Unfair Contract Term?
Essentially, any term that creates an imbalance, or allows one party to do something or receive a benefit that the other party is prevented from, may constitute an unfair term. This includes terms that create an imbalance between the parties’ rights and obligations, or any terms that are not reasonably necessary to protect a legitimate interest. However, whether a particular term is ‘unfair’ will be determined on case by case basis. Examples of imbalance could include a clause allowing one party to terminate at any time while the other party must give notice, onerous post-termination restraint clauses, or terms offering broad indemnities or exclusions of liability.
What if a UCT is included in a standard form contract?
If a party is found to have included UCTs in their standard form contracts, they will be subject to significant penalties, rather than the unfair clause merely being unenforceable. For companies, the maximum financial penalties is the greater of the following:
- $50 million;
- three times the value of the “reasonably attributable” benefit obtained from the conduct, assuming the Court can determine this; or
- if a Court cannot determine the benefit, then 30% of adjusted turnover during the breach period.
The maximum financial penalty for an individual is $2.5 million.
The changes apply to standard form contracts made, renewed or varied on or after 9 November 2023.
It is therefore critical that all businesses engaging with consumers or other small businesses (including sole traders/contractors) review their standard form contracts to ensure there are no unfair terms. While employment contracts are excluded from the new regime, independent contractor agreements are not. If you supplement your workforce with independent contractors, you need to review those agreements to ensure compliance.
Cheney Suthers can help to review and advise on whether your standard form contracts meet your obligations under the Australian Consumer Law. If necessary, we can re-negotiate your contracts or terms to ensure that your contracts are compliant, while still protecting your legitimate business and commercial interests. Fill out our enquiry form today.