Small businesses and consumers will soon be protected regarding one-sided or “unfair” contracts starting November 9th, when Australian Consumer Law will be changed to ban companies from offering, using, or inequitable contract terms.
If a company’s contract terms are found to be unfair, penalties can be instituted in three different ways by the court:
- A penalty of $50,000,000 will be instated.
- Three times the cost of the “reasonably attributable” benefit obtained from the conduct – the court can decide the benefit.
- If a court cannot establish the benefit, 30% of altered turnover during the breach period.
For an individual, the maximum penalty is $2.5 million.
To get a jump on the new law, the ACCC urges companies to examine their basic contracts to uncover any unfair contract terms that need to be amended before new penalties take effect.
The new law is coming after the ACCC has investigated several contracts, including the most recent, PayPal, and the changes will grant Courts the ability to enforce significant penalties on firms and individuals with unfair terms found in their standard form contracts.
Previously, a Court only had the power to voice those terms of a contract were unreasonable and consequently void.
“The changes to the unfair contract terms laws should motivate businesses to take steps to ensure their standard form contracts are fair, including by removing or amending concerning terms,” ACCC Deputy Chair Mick Keogh said.
“There was previously little motivation for businesses to comply with the law, despite the ACCC’s compliance and enforcement actions. We strongly urge businesses to review their contracts now to ensure they comply.”
Previously, businesses in Australia have had their contracts written up by lawyers who are primarily protecting their clients and in what the ACCC called a ‘take it or leave it’ approach, which does not safeguard the consumer.
“The test for whether a contract term is unfair has not changed. However, businesses now could potentially face substantial penalties for contravening the law. This will better protect consumers and small businesses with limited bargaining power, expertise, and ability to negotiate or assess standard form contracts,” Mr Keogh said.
“While some of the changes won’t apply to contracts until they are renewed, or a new contract is entered into, businesses should be proactive in reviewing their standard form contracts now.”
The ACCC offers these six tips for corporations to keep in mind when evaluating their contracts:
- “Consider both points of view.”
- “Include counter-balancing terms.”
- “Avoid broad terms.”
- “Meet your obligations under the Australian Consumer Law.”
- “Be clear.”
- “Be transparent.”
The ACCC said the changes will apply to standard form contracts made, renewed, or adjusted on or after 9th November 2023.
