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Commonwealth and state and territory consumer affairs ministers have agreed to strengthen existing unfair contract term protections in the Australian Consumer Law, affording up to 99 per cent of businesses protection.
“Evidence gathered through public consultation indicates that unfair terms remain prevalent in standard form contracts and there is uncertainty around the scope of the existing protections,” said Assistant Treasurer Michael Sukkar.
“These reforms will improve consumer and small business confidence when entering into contracts.”
Unfair contract terms will be unlawful under the reforms. Courts will also have the power to impose a civil penalty.
They also increase eligibility for protection by expanding the definition of small business and removing the requirement for a contract to be below a certain threshold.
The reforms will also provide more clarity on when protections apply. For instance, explaining what a “standard form contract” is.
The definition of a small business is also being expanded to include businesses with fewer than 100 employees at the time of entering the contract, or having an annual turnover of less than $10 million.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the reforms.
“Importantly these reforms will ensure unfair contract terms are illegal and the courts will have the power to levy penalties for breaches,” said Ms Carnell.
“Equally, we welcome the expansion of the definition of small business to under $10 million turnover or up to 100 employees, which means 99% of businesses will be afforded these protections.
“The removal of the requirement for a contract to be below a certain threshold also represents significant progress for small businesses.”
Ms Carnell also added that these reforms must also target government contracts.
“It’s also crucial these reforms apply to government contracts, which often impose unfair contract terms on small businesses.”
However Ms Carnell noted that requiring courts to make the final decision will disadvantage small businesses.
“While these reforms do offer small businesses more confidence to enter into a contract with a larger business, it is disappointing that unfair contract terms will still need to be decided by the courts.
“This has proven to be a significant barrier for small business as pursuing legal action is a costly, stressful and time-consuming exercise.”