Australian businesses urged to review contracts ahead of new penalties

The Australian Competition and Consumer Commission (ACCC) is urging all businesses to take immediate action by reviewing their standard form contracts ahead of sweeping changes to Australian Consumer Law.

The changes include substantial penalties for businesses using unfair contract terms in their agreements with consumers and small businesses. The impending changes, set to take effect on November 9, will have far-reaching implications for businesses across the country.

Following the introduction of the new legislation, it will become illegal for businesses to propose, use, or rely on unfair contract terms within their standard form contracts. The ACCC will have the authority to impose hefty fines on individuals and businesses that violate these new regulations, marking a significant shift from the current practice where only specific terms within contracts can be declared unfair and void by a court.

Contact law changes will promote fairness

ACCC Deputy Chair Mick Keogh emphasised the importance of these changes, stating, “The changes to the unfair contract terms laws should motivate businesses to take steps to ensure their standard form contracts are fair, including by removing or amending concerning terms.”

Keogh said the amendments come after a history of non-compliance with previous regulations, making it imperative for businesses to act proactively.

Standard form contracts have been a cost-effective way for businesses to engage with consumers and small businesses in high volumes. However, these contracts are often one-sided, drafted primarily in favour of the offering party. The imminent changes seek to level the playing field and ensure fairness for consumers and small businesses, who usually lack larger enterprises’ negotiating power and expertise.

The criteria for determining unfair contract terms will remain unchanged, but the consequences for non-compliance will be far more severe.

“While some of the changes won’t apply to contracts until they are renewed or a new contract is entered into, businesses should be proactive in reviewing their standard form contracts now,” Keogh explained.

To help businesses navigate these changes successfully, the ACCC has provided several key tips for contract review:

1. Consider both perspectives: Evaluate contract terms from both your business’s standpoint and that of the other party to ensure fairness.
2. Include counter-balancing terms: Ensure that your contracts contain terms that balance the interests of both parties. For example, if your business needs the ability to change products or services unilaterally, provide a corresponding option for customers to exit the contract without penalties.
3. Avoid broad terms: Refrain from using excessively broad terms that could be exploited to the detriment of the other party. Make sure terms are reasonably necessary to protect your legitimate interests.
4. Meet your obligations under the Australian Consumer Law: Do not include terms that seek to evade your obligations under the Australian Consumer Law, such as limiting consumer guarantee rights or disclaiming representations made outside of the contract.
5. Be clear and transparent: Use straightforward and understandable language in your contracts, and make sure key terms are prominently presented during the sign-up and renewal processes.

In addition to the above changes, the coverage of unfair contract term laws will expand to encompass more small business contracts. The new threshold will apply to small businesses employing fewer than 100 people or with an annual turnover below $10 million.

The ACCC has advocated for penalties for unfair contract terms for several years, culminating in these regulatory changes. Recent ACCC actions have demonstrated its commitment to addressing unfair contract terms, including investigations and court actions against businesses in various industries.

Keogn suggests it is essential for businesses to understand the severity of the penalties that could result from non-compliance.

Under the new unfair contract terms law, businesses may face fines of up to $50 million, three times the benefit obtained from the conduct, or 30 per cent of adjusted turnover during the breach period. Individuals can be penalized up to $2.5 million.

The changes will apply to standard form contracts made or renewed on or after November 9, 2023, and any contract term variations or additions after this date will also be subject to the updated regulations. Businesses must act swiftly to ensure compliance with these new laws and protect themselves from substantial financial penalties.

For more information on the changes to unfair contract terms laws, businesses can visit the ACCC’s website

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