Unfair contracts changes: wider scope and new penalties
If you use a standard form contract, you could be playing a dangerous game
Following the changes to the Australian Consumer Law (ACL) that took effect on 9 November 2023, businesses can incur fines as large as $50 million if their standard form contract contains an unfair contract term.
The headline effects of the changes are that:
penalties associated with unfair contract terms now apply to a wider range of small businesses; and
a pecuniary penalty now applies to the use of unfair contract terms, up to the larger of $50,000,000 or 30% of the company’s annual turnover.
Note that, until now, unfair contract terms were not subject to pecuniary penalties.
Do the changes apply to my business?
The changes will impact more business contracts than before. If your business uses a standard form contract that falls under the definition of a Small Business Contract (see below), then you should consider seeking advice to review your contracts for any unfair terms. Note that the new definition is much broader and would capture many more entities.
In practice, it would be safe to assume that if you contract with enough people to require a standard form contract, then your contract is almost definitely impacted.
I have a “Small Business Contract” but what’s a standard form contract?
There is no hard-line definition, however it would likely include many commonly used contract types such as standard terms of trade incorporated into quotations, purchase orders, credit applications or sale agreements. And note – even if the contract provides an opportunity to negotiate its terms this doesn’t necessarily make it non-standard form. In practice, if you use a standard contract frequently and negotiate it rarely, it will almost definitely be caught.
What should I do?
These changes are now in force, so if you haven’t had your contracts reviewed yet, the time is now!
At AB, we’ll happily review your contracts at a competitive rate, and we’ll only make changes that we really think are necessary.
Reach out to us using the button below - we are happy to have a free 30-minute chat with you without any further obligation.