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Unfair SME contracts to go as government proposes ban

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Unfair SME contracts to go as government proposes ban

Small business minister Michaelia Cash

The federal government has now joined the opposition in promising to ban unfair contract terms being used against SMEs, meaning that changes will be made regardless of who wins the election.

In a joint statement dated 28 March, and posted to Twitter on Friday, Assistant Treasurer Stuart Robert and Small and Family Business, Skills and Vocational Education Minister Michaelia Cash (pictured) announced that the government would ban unfair contract terms being used against small and medium-sized businesses within standard form contracts.

“The government will introduce amendments strengthening the current laws, subject to the outcomes of a Regulation Impact Statement (RIS) process,” the statement said.

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“In late 2018, a review of the existing legislative protections provided to small businesses in relation to UCTs (unfair contract terms) was undertaken.

“The review found while the current UCT regime (which commenced in November 2016) has improved protections to small business in certain industry sectors, it does not provide strong deterrence for businesses to not use UCTs and, therefore, does not afford appropriate protections to many small businesses.

“In addition, a number of the legislative settings of the current regime appear to have created ambiguity, uncertainty and practical difficulties for businesses in complying with the law.”

According to Ministers Robert and Cash, the government will consult with the industry on various options to enhance the current laws, including:

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  • Making UCTs illegal and attaching civil penalties to breaches
  • Redefining small business for the purposes of the protections as a business that employs fewer than 100 persons at the time the contract was entered into or had an annual turnover less than $10 million
  • Broadening the coverage of small business contracts by removing the value threshold
  • Further clarifying the definition for a standard form contract
  • Extending the UCT protections to government contracts
  • Considering exempting “minimum standards” prescribed by state and territory laws

“In addition to these options, stakeholder views on a number of technical amendments will be sought through the RIS process,” they said.

“The UCT protections for small business are mirrored in the Australian Consumer Law for consumers and the government has also committed to extend UCT protections to insurance contracts.

“To ensure the regime continues to be consistently applied across the economy, the government will also consult, as part of the RIS process, on whether it is appropriate to apply any enhanced protections for small business to consumers and insurance contracts.

“The review also highlighted the need for regulators to improve their guidance for complying with the law and to work with industry stakeholders to promote awareness of the UCT protections for small business. Following the finalisation of the consultation process, the government will ask regulators to revise UCT guidance and work with industry to improve awareness of the provisions where possible.”

Labor announced its plan to ban unfair contracts and attach penalties of up to $10 million for large companies breaking the law back in January this year, suggesting that the changes will win bipartisan support regardless of who wins the election, expected to be held in May.

The changes have long been advocated by the ACCC and the Small Business Ombudsman (ASBFEO) as a means of removing unfair burden on SMEs, such as a company’s ability to unilaterally change contract conditions or impose one-sided costs or penalties.

“We welcome the proposed UCT changes by the Coalition and expect the Regulation Impact Statement process to involve proper consultation and engagement with the sector and not just the big end of town which has a vested interest in watering it down,” Ombudsman Kate Carnell said on Friday.

“The proposed changes would remove the imbalance of power between large and small businesses.

“Small businesses do not have the power to negotiate terms that are unfair for fear of retribution or afford costly legal proceedings that could send them broke.”

According to Ms Carnell, most of the contracts it sees as part of its small business dispute resolution process still contain clauses that have already deemed to be unfair by the ACCC and even ASIC.

“Making UCTs illegal and attaching civil penalties to breaches would level the playing field, as there would be a greater incentive not to include them in standard form contracts offered to small businesses,” she said.

“It would also mean the regulators could better enforce the legislation.”

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