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Draft legislation seeks to protect SMEs from unfair contract terms

Juliet Helmke
24 August 2021 1 minute readShare
protect SMEs from unfair contract terms

Following a consultation with small business stakeholders, the government has released draft legislation to strengthen unfair contract term protections for SMEs and consumers.

The government is seeking feedback on draft legislative reforms to Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 that will better protect small businesses from unfair contract terms (UCT).

The bill aims to reduce the prevalence of unfair terms in standard form contracts and improve consumer and small business confidence when entering into standard agreements.

Following a consultation that concluded in November 2020, Commonwealth and state and territory consumer affairs ministers agreed to pursue a number of reforms, having found unfair contract terms to be widespread and uncertainty about the existing protections common among small business leaders.

The key reforms contained in the draft legislation include:

  • prohibiting the use, application and reliance on an unfair term
  • providing courts with the power to impose a financial penalty for a contravention
  • expanding the protections to capture a larger number of small businesses
  • creating a rebuttable presumption that a term is unfair if a court has already found a similar term used in similar circumstances is unfair

Perhaps most significantly for SMEs, the law seeks to increase the eligibility threshold for businesses covered by these protections from fewer than 20 employees to fewer than 100 employees. It also introduces an annual turnover threshold of less than $10 million as an alternative threshold to staff size for determining eligibility.

Protections for consumers against unfair contract terms in standard form contracts were introduced to Australian Consumer Law in July 2010. These protections were extended to small businesses in 2016.

The government undertook a review of the protections for small business in 2018 to ensure they were properly shielding SMEs from unfair terms.

The review uncovered a number of issues, which were then brought to small, medium and large business stakeholders, as well as individual consumers, for consultation on policy measures to strengthen protections. This draft legislation is the outcome of that process.

The exposure draft bill is now available on the Treasury website. Submissions from stakeholders are being sought until 20 September 2021.

Draft legislation seeks to protect SMEs from unfair contract terms
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Juliet Helmke

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