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Changes to contract and consumer law are overdue safeguards against unfair companies, says ACCC
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Ban, penalties for unfair contracts ‘essential for SMEs’
03 November 2022
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Outlawing unfair contracts and imposing penalties for consumer law breaches - have been welcomed as overdue protection for small businesses by the ACCC.
“We have long highlighted the adverse consequences of unfair contract terms on consumers and small business, including franchisees, and suggested that they be outlawed and penalties are required to provide a stronger incentive for businesses to comply,” said ACCC chair Gina Cass-Gottlieb.
She said previously courts could declare specific terms of a contract unfair and therefore void, but they were not prohibited and a court could not impose any penalties on businesses that included them in standard form contracts.
“These changes will improve small business and consumer confidence that they will not be taken advantage of when entering into or renewing standard form contracts in the future,” she said. “Businesses have 12 months to review and update their standard form contracts before these penalties apply.
“Many small business complaints about big business are about unfair contract terms and it will be an enormous boost to small businesses that there will be a far stronger deterrent against the use of such terms.”
It also expanded the number of small businesses being given protection, she said.
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The changes would apply to contracts with small businesses which employed fewer than 100 staff or had an annual turnover of less than $10 million, irrespective of the value of the contract. Previously to be covered a small business had to have fewer than 20 employees.
The law also clarified the definition of “standard form contracts”.
“Standard form contracts provide a cost-effective way for many businesses to contract with significant volumes of customers,” said Ms Cass-Gottlieb. “However, by definition, these contracts are largely imposed on a take-it-or-leave-it basis.”
“The unfair contract terms laws are vital to protect consumers and small businesses against terms in these contracts that take advantage of this imbalance in bargaining power.”
“We are pleased that these laws have been strengthened.”
Assistant Minister for Competition, Charities, and Treasury Andrew Leigh said the revisions would safeguard small businesses from unfair standard form contracts.
“They’re unenforceable at the moment, but they’re not illegal,” he told Sky News.
“And making them illegal has been broadly welcomed by the small business community and by people who want to see that dose of economic dynamism in the Australian economy that will help get productivity going again.”
Speaking at the Australian Government Solicitor Civil Regulation Conference, Dr Leigh said the increased competition would support a stronger economy and greater small businesses.
“The big firm writes terms in its standard contracts allowing it to increase prices. Smaller companies often lack the resources and bargaining power to negotiate terms in standard form contracts,” he said.
“That’s why the government will outlaw unfair contract terms. If companies put unfair terms in their contracts and a court finds they are unfair, then they can expect to cop a penalty.”
Greater financial penalties for businesses that breach provisions of the Competition and Consumer Act, including Australian Consumer Law, were also introduced as part of the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022.
“The increase in penalties should serve as a strong deterrent message to companies that they must comply with their obligations to compete and not mislead or act unconscionably towards consumers,” said Ms Cass-Gottlieb.
“These maximum penalty changes will allow the courts to ensure that the penalties imposed for competition and consumer law breaches are not seen as a cost of doing business, but rather as a significant impost and something likely to raise serious attention of owners or shareholders.”
The new maximum financial penalties for breaches of the Competition and Consumer Act are:
- $50,000,000
- Three times the value of the “reasonably attributable” benefit obtained from the conduct, if the court can determine this
- If a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period
These new maximums were increased from $10 million, three times the benefit obtained or 10 per cent of the relevant turnover.
The maximum penalty for an individual was also increased from $500,000 to $2.5 million.
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