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Crackdown on unfair contracts to protect small businesses

 A new national agreement to strengthen protections for small businesses from unfair contract terms will give courts the power to impose penalties for breaches. Last month, the ACCC began Federal Court action against print company Fuji Xerox Australia over alleged unfair contract terms.

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Assistant Treasurer Michael Sukkar announced last week that Commonwealth and state and territory governments had agreed to make unfair contract terms unlawful, giving courts the power to impose a civil penalty when a breach occurs.

Key reforms include:

Making unfair contract terms unlawful and giving courts the power to impose a civil penalty.

Increasing eligibility for the protections by expanding the definition of small business and removing the requirement for a contract to be below a certain threshold.

Improving clarity on when the protections apply, including on what is a ‘standard form contract’.

“The government has clearly listened to the concerns my office has long held in relation to the impact of unfair contract terms imposed on small businesses by big businesses,” said Kate Carnell, Australian Small Business and Family Enterprise Ombudsman. “Importantly, these reforms will ensure unfair contract terms are illegal and the courts will have the power to levy penalties for breaches.

“Equally, we welcome the expansion of the definition of small business to under $100 million turnover or up to 100 employees, which means 99% of businesses will be afforded these protections.”

The removal of the requirement for a contract to be below a certain threshold also represents significant progress for small businesses, she said.

“While these reforms do offer small businesses more confidence to enter into a contract with a larger business, it is disappointing that unfair contract terms will still need to be decided by the courts. This has proven to be a significant barrier for small business as pursuing legal action is a costly, stressful and time-consuming exercise.

 “That’s why my office continues to recommend giving the regulators additional powers to penalise businesses found to have imposed unfair contract terms on a small business. It’s also crucial these reforms apply to government contracts, which often impose unfair contract terms on small businesses.

“We look forward to seeing draft legislation to ensure these necessary reforms come to fruition as a matter of urgency.”

Carnell last month welcomed the ACCC’s Federal Court legal action against Fuji Xerox Australia over alleged unfair contracts. She said her office had also received complaints against other print technology suppliers regarding alleged unfair contract terms.