From 9 November, changes to the Australian Consumer Law ban businesses from proposing, using, or relying on unfair contract terms in standard form contracts with consumers and small businesses.
Standard form contracts are usually:
- offered on a ‘take it or leave it’ basis
- drafted to the advantage of the party offering them.
We encourage businesses to review their standard form contracts and remove or amend any unfair contract terms. Otherwise, they risk substantial new penalties that take effect from today.
Penalties can be as high as:
- $50,000,000 for businesses
- $2.5 million for individuals.
Unfair contract term laws also apply to more small business contracts than before. Small businesses that employ fewer than 100 people or have an annual turnover of less than $10 million are now protected.
Other key changes include the removal of a financial limit on which contracts are protected and clarifying other aspects of the laws, such as more clearly defining what is a ‘standard form contract'.
Courts can continue to declare specific terms of a contract unfair, meaning they are void and cannot be used. The test for whether a contract term is unfair has not changed.
What businesses can do
When reviewing their contracts, businesses should follow these tips:
- 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.