From 9 November 2023, changes to the Australian Consumer Law mean that businesses of all sizes can’t propose, use or rely on unfair contract terms in standard form contracts. Find out what this means for your small business contracts.
A standard form contract is generally one which has been prepared and entered a number of times by one party to a contract and where the other party has little or no opportunity to negotiate the terms. They are an important part of running many business activities but may contain unfair contract terms.
In general terms, an unfair contract term is one which might not consider consumer rights. It could, amongst other matters, involve excessive fees or make it hard for a person or business to cancel or discontinue the contract.
An example of an unfair contract term would be a business which offers an annual subscription for services to be charged once a year – but the contract doesn’t include a reminder to subscribers that the payment is approaching or give them the opportunity to opt out before the payment is debited.
Upcoming changes to the laws around standard form contracts in Australia aim to make things fairer for everyone. Here’s what you need to know.
What’s changing?
As a small business owner, you might deal with:
- The contracts you have with your customers and suppliers
- The contracts your suppliers and other businesses have with you
The new laws aim to make sure the terms used in standard form contracts are not misleading or unfair to the parties involved.
While changes were made to the Australian Consumer Law in 2016 to protect small businesses from unfair terms in standard form contracts, they offered little protection. This has particularly been the case for small business contracts - but things are changing.
From 9 November 2023, changes will be made to whether a contract is considered a standard form contract and what defines a small business contract. In addition, businesses or individuals who include unfair terms in their standard form contracts could face substantial penalties of up to a maximum of $2.5 million for an individual. The changes apply to standard form contracts made or renewed on or after 9 November 2023 and a term of a contract that is varied or added on or after this date.
What actions should you take?
If your business uses standard form contracts, it is important that you check them.
Review the terms in your standard form contracts
Take a close look at the terms in your standard form contracts you have with your customers or other businesses.
If a term seems unclear, unbalanced or unfair, it’s important to take action on this now. Use clear, transparent language and make sure it’s easy for your customers to understand what they’re agreeing to when they sign up. You also need to make sure that what you’re asking them to agree to is fair, especially in terms of their consumer rights (to refunds and exchanges, for example) and contract renewals and cancellations.
In general, practical tips from the ACCC to avoid unfair terms in standard form contracts are to:
- consider both points of view
- include counter-balancing terms
- avoid broad terms
- meet your obligations under the Australian Consumer Law
- be clear
- be transparent
Get independent legal advice
It is strongly recommended that you seek independent legal advice to review your standard form contracts and remove or change any unfair terms, so you can do the right thing by the other party and avoid penalties in future. If you do need to make changes to your contract terms, make sure you do this before 9 November 2023.
Check the contract terms you have with other businesses
Before you sign or renew a standard form contract with another business, make sure the terms are fair.
If you have any questions about a certain term, make sure you clarify this with the other party before you sign. Again, it could be worth seeking independent legal advice if you need guidance.
Know your options
If you believe you’re experiencing an unfair contract term, or other unfair business practices such as non-payment or breach of contract, you can anonymously report the issue for our SBDC team to investigate.
If you get involved in a dispute with another business or government department, you could use our dispute resolution service for help to resolve the dispute.
Learn more about standard form contracts
To learn more about standard form contracts you issue to customers and/or sign with other businesses, you can:
- Visit the ACCC website for a range of information and resources
- Read our guide on unfair contract terms
- Learn more about Contracts and agreements
- Book your place in one of our low-cost workshops on contracts.
The more you can learn about standard form contracts, the more you will be prepared for the changes to come from 9 November.
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