Extension of unfair contract protection to small business contracts

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 has been introduced into the House of Representatives. Background.

UPDATE: On 13 August 2015 the Selection of Bills Committee referred the provisions of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 to the Senate Economics Legislation Committee for inquiry and report by 4 September 2015.

On 18 August 2015 the Bill was passed by the House of Representatives.

If passed, the Bill will amend the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Australian Consumer Law (ACL) to extend the unfair contract term protections currently available to consumers to cover businesses with less than 20 employees agreeing to standard form contracts valued at less than a prescribed threshold.

The ASIC Act’s requirements apply to financial services and products and the ACL applies to the supply of goods or services other than financial services or products and the sale or grant of an interest in land.

A contract is a small business contract if, at the time it is entered into, at least one party to the contract is a business that employs fewer than 20 persons, and the upfront price under the contract does not exceed either $100,000, or $250,000 if its duration is more than 12 months.

The upfront price concept applies to all contracts in the same way, except for credit contracts. For the purpose of working out whether a credit contract falls under the transaction value threshold, the upfront price does not include any interest payable under the contract.

In calculating the number of persons a business employs, a head count approach (regardless of an employee’s hours or workload) is used. Casual employees are to be counted only if they are employed on a regular or systematic basis, to account for seasonal variations.

The small business unfair contract term protection will not apply to insurance contracts or constitutions of a company, managed investment scheme or other kind of body.

The amendments will apply to varied terms, and contracts entered into or renewed on or after the day the legislation comes into effect. It is expected to commence in 2016.

Agreements such as credit contracts, retail leases, supply agreements and franchise agreements will be affected.

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