Opinion piece: Policy banning unfair contracts will shield SMEs from exploitation

Australian Treasury

The cleaning companies were multi‑billion‑dollar firms, but most of their customers were small businesses. So the big firms wrote contracts that allowed them to increase their prices. To make things worse, the contract said that if the small businesses didn’t like the price rises, they had to pay huge penalties to cancel the contract.

Small companies often lack the resources and bargaining power to negotiate terms in standard form contracts. Existing laws haven’t stopped the use of unfair terms, which are hurting small businesses across Australia.

Right now, contract terms found by a court to be unfair are unenforceable, but they’re not illegal. That’s why we’ve announced that the Albanese Government will outlaw unfair contract terms. If companies put unfair terms in their contracts and a court finds they are unfair, then they can cop a penalty from the court.

This won’t have any impact on companies who are doing the right thing, but it will help small businesses that are faced with unfair terms in take‑it‑or‑leave‑it contracts. Clear consequences will reduce the burden on small business by discouraging big corporations from imposing unfair terms in the first place.

Allowing start‑ups to grow with confidence is a critical part of Labor’s plan for productivity. When the economy is dominated by monopolies, consumers pay more and workers earn less. Safeguarding small businesses and contractors from exploitation is good economics, and fundamental to boosting productivity.

Unfair contract terms can be used by big firms to bully small ones, which often lack the resources and bargaining power to negotiate. In one case, a large firm that provided hold music to small businesses had a standard form contract requiring customers to cancel at least 42 days before the end of their initial contract. If the customer didn’t cancel on time, they were automatically rolled over for another two or three years. Then, if they wanted to cancel the contract, they had to pay 97 per cent of the contract price.

Banning unfair contract terms will provide meaningful protection for small businesses, contractors and smaller scale suppliers to shield them from exploitation. It will protect small businesses from unfair contract terms so the sector can grow with confidence.

Currently, if a term in a contract signed by a small business is found to be unfair by a court or tribunal, the clause will be void and the small business will no longer be required to comply with it. But there are no rules against including unfair terms in the first place, and no penalties when they’re discovered.

Right now, it’s too tough to challenge unfair contract terms. What small business has the legal budget and time to take on a large competitor? And who wants to start a fight in the courts with a business that’s essential to your industry? Stronger deterrence and expanding the number of protected businesses will mean this has to happen less often.

Under the rules as they stand, the Australian Competition and Consumer Commission cannot issue civil pecuniary penalties against businesses imposing unfair contract terms, and too few small businesses are protected by the rules. Seeking to have a term voided can be a drawn out and costly process, and court or tribunal decisions do not have any flow‑on effect that voids other uses of the same contract terms.

This reform has been a long time coming. It’s a policy that Labor took to the 2019 election, and we’re keen to finally see it implemented. When large contractors, landlords and suppliers lock smaller players into unfair agreements, it is bad for business and highly distressing for small business people.

Our changes will make life better for small business, and fairer for the economy. Because there’s nothing right about a multi‑billion‑dollar business taking Australian small businesses and consumers to the cleaners.

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