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Coming recently into effect are a raft of measures designed to embolden small business. But, beyond protection, what else do they offer?
A general attitude permeating Australian law has been that the big or small businesses involved in business-to-business deals can look after themselves.
In other words, the principle of free enterprise allows businesses to make deals without too much interference.
The consequence has been that, to some extent, big business has had close to a free hand in the way it deals with its small business suppliers and associates. And by the way, small business can come in pretty small packages – such as a young performer on a television talent show or a small tenant operating a fledgling business in a shopping centre.
The problem with giving big businesses a free hand can, for example, mean that in the case of a young performer, contracts can be harsh and unfair, imposing unrealistic conditions like the surrender of copyright in original songs and extending restrictive contracts well beyond their time on the talent show. In the case of the fledgling shopfront in a shopping centre, contracts can insist on that business bringing in more income than is realistic for a start-up or have their lease terminated.
Well, things have changed in certain respects. Up until November 2016 contract law was the place for small business to pursue any perceived rights or correct any perceived wrongs. And it was certainly clear that the law did not tell the parties what to put into contracts as long as the contract was not illegal (like a drug-running contact or a contract to defraud the government). As a result, big business churned out some tough contracts for small business to deal with. It was often a case of “take it or leave it” because there’s always another small business that can step in. Disputes over contracts were supposedly to be resolved by negotiation, mediation or litigation.
Note as an aside that if the small business argued that the relationship was an employment one and not a “business-to-business” one, then the complaint could be taken to the Fair Work Ombudsman for resolution. That point aside, small business was pretty much treated like big business in the legal sense.
Contrast “business-to-consumer” contracts with “business-to-business” contracts. The consumer protection laws we are generally familiar with in Australia protect the average citizen from unfair or unscrupulous conditions attaching to contracts we enter into as consumers, like an insurance contract or a contract involving hiring a car or buying a fridge.
Consumers can seek redress from relevant government agencies like Fair Trading or Consumer Protection agencies if the contract terms are found to be unfair.
But since November 2016 there is an unfair contract line of complaint or possible remedy available to small businesses in Australia when they believe they’ve been treated unfairly by big business. The relevant law is the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015.
That law came into effect on 12 November 2016 and it’s federal law so it applies all around Australia.
The consequence is that a form of consumer law now protects small businesses from unfair terms in standard form contracts issued by big business. The law applies to standard form contracts entered into or renewed on or after 12 November 2016 if the relevant pre-conditions are met. The pre-conditions are: the contract involves the supply of goods or services, or the sale or grant of an interest in land; at least one of the parties is a small business, that is, employs fewer than 20 people (including casual employees employed on a regular and systematic basis); and the upfront price payable under the contract is no more than $300,000 or $1 million if the contract is for more than 12 months.
If a contract is varied on or after 12 November 2016, the law applies to the varied terms.
The Australian Competition and Consumer Commission (ACCC) oversees the law and notes that a standard form contract is one that has been prepared by one party to the contract and the other party has little or no opportunity to negotiate or vary the terms – that is, it is offered on a “take it or leave it” basis.
The sorts of terms that may be unfair as noted by the ACCC include terms that enable one party (but not another) to avoid or limit their obligations under the contract; and terms that enable one party (but not another) to terminate the contract.
Examples of cases
In what looks like a test case, the ACCC was recently granted a declaration in the Federal Court against waste management company JJ Richards & Sons over alleged unfair terms in its small business contracts.
The ACCC alleged JJ Richards’ standard form small business contract terms were void because they created a major imbalance in the rights and obligations of JJ Richards over their small business clients. For example, the standard contract gave small business just 30 days at the end of a five-year contract to cancel the contract while at the same time permitting JJ Richards to unilaterally increase prices and exercise exclusive rights to remove waste from the small business’s premises. The declaration endorsed by the Federal Court made eight terms of the standard contract null and void.
The ACCC has also reported that it’s getting on with enforcing this legislation elsewhere and notes that a number of other small business contracts have changed as a result of its intervention, including:
- Uber changed its standard driver agreement that previously allowed Uber to terminate the agreement without cause. Now it is obliged to act reasonably and justify its actions.
- Fairfax Media changed a term in one of its advertising contracts that allowed it to refuse or withdraw a customer’s advertisement for any reason at any time. This is now limited to certain situations such as where the advertising may be illegal, defamatory or obscene.
- Lendlease changed its standard lease from unlimited rights to recover costs from tenants to costs properly and reasonably incurred.
If a small business thinks a term in a contract is unfair the business can:
- ask the other party to remove the term or amend it so it is no longer unfair;
- talk to a lawyer/adviser;
- contact the local state or territory consumer protection/fair trading agency; or
- contact the ACCC
So standard form contracts issued by big business to small business are now subject to scrutiny and adjustment if found to be unfair. If a small business – and that includes sole traders – is concerned or unsure about its rights it can contact the ACCC as probably the least expensive initial option before assessing whether legal advice is also a good idea.
Note: This article is intended as a guide only and does not constitute legal advice.