What your contracts CAN'T include
In this blog, I’m delving into significant changes in business contract rules that took effect on 9 November 2023. As small business owners, you need to know what’s changed, and I will break down the key points below.
Changes in the Australian Consumer Law:
The Australian Consumer Law (ACL) contains important rules that small business owners need to know about and need to comply with. The ACL applies to product-based and service-based businesses (it’s not applicable only to larger companies that sell products to consumers, as many business owners seem to think).
Changes to the rules that apply to small businesses were introduced via the Treasury Laws Amendment, More Competition, Better Prices Act 2022, and in particular, changes to unfair contract terms now apply to small businesses.
New Rules for Small Businesses:
One of the most notable changes is the removal of exemptions for small businesses from certain rules. Previously, businesses with less than 100 employees or an annual turnover of less than 10 million were exempt. Now, all businesses falling under these criteria must be cautious about including terms in their agreements that could be deemed unfair.
Understanding Unfair Contract Terms:
Rules and laws around unfair contract terms have been around for a while. These are now sharper and more focused on protecting consumers when dealing with small businesses. When we talk about unfair contract terms, we are talking about things such as significant imbalances in the rights of parties (aka a one-sided contract in favour of the business), unnecessary inclusions and penalties that are likely to cause detriment to one party (usually the consumer); unfair termination clauses, restrictions on varying contracts (usually in favour of the business), and the right for a business to increase prices without negotiation with the consumer – to name a few.
In short, if your business contracts (or agreements, client service terms and conditions, and so on) include terms that will be deemed as unfair under the new rules, then these provisions won’t be enforceable if you end up in a legal stoush with a client. If this is you, my hot tip to you here is to review these provisions and have them redrafted by a business lawyer who knows how to make a contract work (aka us!).
I am predicting that these changes will impact coaches in particular. There has been a lot of talk this year around the coaching industry, with many critical of the lack of regulation. Well, these rules target unfair and one-sided termination clauses and penalty clauses, and I know a lot of coaches will feel the pressure here if they don’t take steps to reevaluate their approach should their clients push back on some clauses that are now deemed unfair at law.
Introduction of Penalties:
Another significant change introduced in the new rules is the introduction of penalties for businesses with contracts containing unfair terms. Courts now have the power to impose monetary penalties, with individual penalties ranging from $50k to $2.5M.
Worried? You should be. You honestly can’t afford to get this wrong.
Greater Court Powers:
Another change relates to greater power given to the courts to take steps to void an entire contract if it contains unfair contract terms – as opposed to the previous power to void the specific clause itself. The risk here to the business is far greater than it ever was before.
Taking Action:
As always, our view here at TM Solicitor is that in business, prevention is better than cure. That couldn’t apply more than it does now. Our recommendation is to be proactive with your contracts in light of these new rules and get on the front foot by having your contracts reviewed and updated where necessary.
To wrap-up, the recent changes to rules relating to unfair contract terms, widening the scope of what small businesses are captured, and the increased powers given to the courts, mean that there has never been a more important time for business owners to be proactive and have their existing contracts reviewed – and if you don’t have any contracts in place, no worries, now if the time to prioritise this (and not the time to kick the can down the road any further).
If you need support or guidance with the new rules, with reviewing your existing contracts, or with drafting new contracts for your business, please don’t hesitate to reach out and let’s chat to get things sorted for you – you can book a time for a free 20-minute chat here.
This topic is also discussed in Episode #142 of the Rise Up in Business podcast Your Can’t Afford To Get This Wrong if you’d like to take a listen. Our resource Australian Law 101 - Guide For Small Business may also be helpful to you, providing an overview of how to stay legally compliant in your business.
