The ACCC is encouraging businesses to review their standard form contracts and remove or amend any unfair contract terms before new penalties take effect.
From 9 November, changes to the Australian Consumer Law will prohibit businesses from proposing, using, or relying on unfair contract terms in standard form contracts with consumers and small businesses.
The changes will allow Courts to impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts. Currently, a Court can only declare specific terms of a contract unfair and therefore void.
"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," ACCC Deputy Chair Mick Keogh said.
"There was previously little motivation for businesses to comply with the law, despite the ACCC's compliance and enforcement actions. We strongly urge businesses to review their contracts now to ensure they comply."
Standard form contracts provide a cost-effective way for many businesses to contract with significant volumes of consumer or small business customers. However, these contracts are largely imposed on a 'take it or leave it' basis and are usually drafted to the advantage of the party offering them.
"The test for whether a contract term is unfair has not changed. However, businesses now could potentially face substantial penalties for contravening the law. This will better protect consumers and small businesses who have limited bargaining power, expertise, and ability to negotiate or assess standard form contracts," Mr Keogh said.
"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."
Tips for businesses to consider when reviewing their contracts:
- Consider both points of view: if you think a term is necessary to protect your business's legitimate interest, consider the term from the other party's point of view.
- Include counter-balancing terms: check that your contract has appropriate counter-balancing terms. For example, if you consider that your business reasonably needs the ability to unilaterally change the product or service being provided under the contract, does the contract also allow your customers to exit the contract without penalty when this occurs?
- Avoid broad terms: don't have terms that are as broad as possible. Make sure terms are only as broad as reasonably necessary to protect your business's legitimate interests.
- Meet your obligations under the Australian Consumer Law: don't have terms that seek to avoid your business's obligations under the Australian Consumer Law. For example, don't include terms that seek to limit your customers' consumer guarantees rights, or terms that seek to disclaim any representations your business may have made outside of the contract.
- Be clear: Use clear and simple language in your contracts.
- Be transparent: ensure key terms are clearly drawn to the attention of your customers during the sign-up process, and any renewal process.
The changes will also expand the coverage of the unfair contract term laws to apply to more small business contracts than before. The threshold for small business contracts will increase to apply to small business that employ fewer than 100 persons or have an annual turnover of less than $10 million.
Businesses can view information about changes to the unfair contract terms laws on the ACCC's website.
Background
The ACCC has been advocating for the introduction of penalties to unfair contract terms for many years. This includes in our submission to the Government review of the unfair contract terms protections in 2018, and in a submission to the regulation impact assessment process in 2020 about proposed enhancements to the unfair contract terms provisions.
Additionally, one of the key recommendations of the ACCC's 2020 Perishable Goods Inquiry was to introduce penalties for unfair contract terms, and this has also been a key recommendation throughout the ACCC's digital platform services inquiry.
Recent ACCC actions in relation to unfair contract terms include:
- In 2023, suppliers in the fertiliser industry agreed to amend their contracts following an ACCC investigation into unfair contract terms.
- In 2022, Fowler Homes Pty Ltd provided a court-enforceable undertaking to the ACCC, admitting that its standard home building contract contained unfair contract terms.
- In 2022, the Federal Court declared that 38 contract terms used in contracts entered into by Fujifilm Business Innovation Australia or Fujifilm Leasing Australia (together, Fuji) with many thousands of small businesses were unfair, following court action by the ACCC.
- Funeral service providers Parkside Funerals and Bowra & O'Dea each provided the ACCC with a court-enforceable undertaking, committing to remove potential unfair terms from their funeral services contracts, among other commitments.
Note
The maximum financial penalties for businesses under the new unfair contract terms law are the greatest of:
- $50,000,000;
- three times the value of the "reasonably attributable" benefit obtained from the conduct, if the court can determine this; or
- if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.
The maximum penalty for an individual is $2.5 million.
The changes will apply to:
- Standard form contracts made or renewed on or after 9 November 2023.
- A term of a contract that is varied or added on or after 9 November 2023.
However, where a term of a contract is varied or added on or after 9 November 2023, the changes relevant to deciding whether a contract is a standard form contract apply to the whole contract.
