New unfair contract terms law
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The new unfair contract terms law for small businesses takes effect on November 12, 2016, providing protection against unfair terms in standard form contracts for businesses with fewer than 20 employees. The law applies to contracts related to financial products or services not exceeding $200,000, or $1 million for contracts longer than 12 months, and defines terms as 'unfair' if they cause a significant imbalance in rights and obligations. Businesses are encouraged to review their contracts for compliance to avoid potential enforcement actions by ASIC.
New unfair contract terms law
- 1. BE PREPARED FOR THE NEW UNFAIR CONTRACT TERMS LAW PROTECTION EXTENDED TO SMALL BUSINESS
- 2. New unfair contract terms law for small business comes in to effect 12th November 2016. This new law provides protection for small business for unfair terms in standard form contracts. At least one party to the contract must be a ‘small business’ (defined as a business that employees fewer than 20 people at the time the contract is entered into). Applicable to Small Business Standard Form Contracts
- 3. Unfair Contract Terms Law Applies To It applies to small business ‘standard form’ contracts for a ‘financial product, or the supply or possible supply of financial services’ which do not exceed $200,000 – or $1million if the contract is for more than 12 months. Examples of such are contracts for business loans, credit cards and client or broker agreements. Unfair Contract Terms Law Doesn’t Apply To The unfair contract terms law does not apply to insurance contracts regulated under the Insurance Contracts Act 1984 and the constitutions of companies, managed investment schemes or other kinds of bodies. The Minister has not currently exempted any sectors from the new laws. Unfair Contract Terms Law
- 4. A term in a standard form small business contract is 'unfair' if it would cause a significant imbalance in the parties’ rights and obligations arising under the contract and the term: • is not reasonably necessary to protect the legitimate interests of the party that would benefit from its inclusion; • would cause financial or other detriment (e.g. delay) to a small business if it were to be applied or relied on. What is Deemed an ‘Unfair’ Term
- 5. A term in a standard form small business contract is 'unfair' if it would cause a significant imbalance in the parties’ rights and obligations arising under the contract and the term: • is not reasonably necessary to protect the legitimate interests of the party that would benefit from its inclusion; • would cause financial or other detriment (e.g. delay) to a small business if it were to be applied or relied on. What is a ‘Transparent’ Term
- 6. ASIC expects businesses to review their standard form small business contracts to remove any terms that could be considered to be unfair to ensure compliance before the 12th November 2016. If businesses using contract terms of potential concern are uncooperative, or refuse to make recommended changes, ASIC may consider enforcement action. Important to Review Existing Contracts
- 7. Available on the ACCC Website: Quick Links What is a small business contract? What is a standard form contract? Which contracts are covered? Which contracts and terms are excluded? When is a term of a small business contract unfair? What happens if a court finds a term is unfair? What can I do if I think a term in my contract is unfair? What does ASIC expect businesses to do between now and 12 November 2016? Further Information
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