Fair's fair except when it's not: new laws to weed out 'unfair' contract terms to protect small businesses

In November 2015, an amendment passed that protects small businesses from ‘unfair’ terms in standard form contracts.

This legislation passed, extends the unfair contract term protections to small business contracts. Prior to being passed, the legislation was amended to capture contracts of higher value so it is now anticipated that 95% of contracts with small businesses will be the subject of the new laws.

You have until November 2016 to update your agreements, but we recommend starting early to ensure enough time to obtain legal advice and socialise any changes.

Which contracts are we talking about?

Contracts where:

  • at least one party is a business that employs fewer than 20 people
  • the upfront price payable under the contract is:
    • $300,000 or less
    • $1,000,000 or less (if the contract is for more than 12 months)
  • the contract is a standard form contract* (meaning a pre-prepared contract that is not generally negotiated) for the supply of goods or services or grant of an interest in land.

What do they mean by 'unfair’?

A contract term can fall in the unfair basket if it:

  • suggests a significant imbalance in the parties’ rights and obligations
  • is not necessary (within reason) to protect the legitimate interests of the benefited party
  • causes detriment (financial or otherwise) to the other party.

To be declared unfair, the term must satisfy all 3 criteria.

A court or tribunal may take into account the contract as a whole and the extent to which the term is transparent to determine whether a contract term is, in fact unfair.

Word to the wise: they will especially be on the look-out for ‘unfair’ terms relating to varying or terminating the contract in question – and anything to do with assigning a contract without consent.

What happens if a term is deemed unfair?

That term will be void – not binding on parties to the contract. The rest of the contract will continue to bind the parties if it is capable of operating without the unfair term.

What should you do now?

To cover your bases, review any agreements that fall within the definition of a small business contract.

Still don’t understand this legal mumbo-jumbo?

Contact your legal advisor or the NSW Business Chamber’s Legal Advice Line on 13 29 59.

Q12016Cristy Houghton