Unfair contracts legislation came into effect around November 2016 targeting standard form contracts of large businesses that were unfair to and taking advantage of the consumer. Since its introduction there have been a few amendments, the biggest being extending the definition of consumer to include small businesses.
2021 is bringing further amendments which are quite significant and businesses (and consumers) should be aware of these changes.
In the existing legislation there are numerous exceptions to standard form contracts that are covered by these unfair contract terms. One of the current exceptions is Insurance Contracts that are subject to the Insurance Contracts Act 1984 (Cth). From 5 April 2021 these Insurance Contracts will no longer be exempt and will need to comply with the unfair contract term legislation.
Under the current system, a breach of the unfair contracts provisions triggers a liability under the existing Australia Consumer Law civil penalties regime. However, further reforms will introduce large civil penalties specifically relating to using unfair contract terms. The introduction date nor how the penalty will be calculated has not yet been announced.
Small business contract
Currently, for a small business contract to be covered by the unfair contract terms legislation, at least one party needs to be a small business employing fewer than 20 people at the time the contract is signed, and the upfront price payable under the contract cannot exceed $300,000 (or, if the contract is for more than 12 months, $1 million).
This definition is set to change to expand the reach of the unfair contract term laws. The definition of small business contract will change so that there is no longer any limit on the upfront price of the contract, and it will cover small businesses who employ up to 100 employees (instead of 20) with an annual turnover of less than $10 million. The date of introduction of this amendment has not yet been set.
Each of these changes are significant in their own right and will greatly impact the laws relating to unfair contract terms. If your business uses standard form contracts (or term and conditions of trade), we recommend that you have these reviewed (and perhaps revised) in order to minimise any adverse impact these changes may bring.