Coaches - Check Your Contracts ASAP | Changes to laws dealing with unfair contract terms are here to stay
There’s a lot for service-based business owners to consider when developing their client service agreements (aka client contracts), and this applies even more so to coaches.
Why? Because I am seeing more and more contracts for coaching services challenged following changes to unfair contract term laws as consumers (clients) are increasingly aware of what’s fair and what’s not.
It’s worthwhile noting here that just because a clause has been included in a contract, doesn’t mean it can be enforced. (You might want to read that twice)
Understanding Unfair Contract Terms for small business
The topic of unfair contract terms has been centre stage since the end of last year when changes to legislation removed the exemptions that were previously in place for small businesses. As of November 2023, small businesses no longer fly below the radar when it comes to the terms they include in their contracts, meaning they are now subject to a greater scope of legislative rules – and the big one is that small businesses are not able to include unfair contract terms in their contracts (and if they do, then they face significant consequences).
How has this happened?
It happened due to the introduction of new legislation, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 under the Competition and Consumer Act.
What are Unfair Contract Terms
Unfair contract terms are terms in a contract (and an agreement is a contract) that cause a significant imbalance in the parties' rights and obligations, are not reasonably necessary to protect the legitimate interests of the party advantaged by the term, and would cause detriment (financial or otherwise) if relied on.
One of the most common examples I see relates to termination clauses in Coaching Agreements. These clauses typically state that a client cannot terminate early a 1:1 coaching relationship before the expiry of the agreements and that if they do, the client must pay the full fee for the entire coaching period – and this is regardless of the fact that the 1:1 coaching services have not yet been provided. There has been no value provided to the client, and no material or intellectual property of value has been shared as yet. This sort of clause is an unfair contract term.
To overcome this, a coach needs to consider what a reasonable termination clause looks like for their business. It may be that a termination clause permitting a client to terminate before the expiry of the contract with a reasonable notice period, and potentially an early termination fee payable, depending on the nature of the services being provided, and the reasonable it it will take for the coach to “fill the coaching” place with another clients – this goes to managing any loss of revenue for the coaching business, whilst fairly considering the client’s ability to terminate if needed.
You can from this example the vast difference between the 2 approaches outlined.
The need to take care with termination clauses, of course, applies to businesses beyond coaches. However, I am focusing this article on coaches because it is becoming increasingly problematic within the coaching industry.
Consequences of Unfair Contract Terms
If challenged, a small business contract can be found to include unfair terms. With the changes to the law, not only can the entire contract be voided/set aside (as opposed to the previous remedy of voiding that clause only), but the business can now be faced with financial penalties that range from $50,000 up to $2.5 million or more.
It’s simply not worth the risk.
There is a lot to know
When developing their contract for coaching services, coaches need to take steps to ensure that the terms they include in their contract are fair and reasonable and don’t breach any of the unfair contract term laws (and of course, this applies to service-based businesses more broadly). Just as important, they need to focus on the sequencing around issuing client agreements/quotes/proposals/terms and conditions, to make sure they are complying with the Australian Consumer Law requirements which require consumers to have advance notice of a business’ terms/agreement and allow an opportunity for review and consideration BEFORE the consumer/client decides to enter into a contract of service with that business.
Moving Forward
Small business owners need to take proactive steps now to review and update their contracts. Coaches – this means you need to review your contract for coaching services.
Engage your business lawyer to provide the advice you need to get this right. Remember, in business, prevention is better than cure.
A business should review its legal documents, including client agreements, at least annually or when things change in the business. This way, businesses can ensure they are keeping up with changes in the law that apply to them and that the way they work, their services, and their pricing are always up to date and current.
The removal of exemptions for small businesses regarding unfair contract terms is serious. This move represents a real focus on consumer fairness and this focus is here to stay.
It’s important for business owners to get on the front foot with ensuring contracts are fair, transparent, and comply with current legislation, including the Australian Consumer Law. By taking the time to do this, business owners are protecting their businesses, maintaining positive client relationships, and are setting themselves up to avoid costly legal disputes moving forward.
This topic is also discussed in Episode #167 of the Rise Up in Business podcast Unfair Contract Terms - what are they & do your contracts need to change?
If you would like help in your coaching, creative or consulting business with reviewing your existing legal documents, or developing them from scratch, be sure to reach out here and we can explore how we can work together to support your business. I’m always happy to help.
