Extending consumer like protections to small businesses across Australia

Today I introduced legislation to extend unfair contract term protections for small business.

This legislation will extend the consumer unfair contract terms protections to cover standard form, small business consumer-like contracts that are valued below a prescribed threshold.

We took more than twenty small business specific promises to the last election. A key one was a commitment to extend the unfair contract terms (UCT) protections available to consumers to small business. With today’s introduction of this legislation we have met each of our small business election commitments.

Consumers have been protected from unfair contract terms since 2010. I have for many years argued that in many cases small businesses have no more market power or ability to vary ‘take it or leave it’ standard form contracts than an individual consumer but lacked the consumer–style protections that provide for unfair terms to be struck out of such contracts.

That is why I have been committed to provide a ‘fair go’ for small business by extending the unfair contract protections currently available to consumers to cover the small business sector.

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 will amend the Australian Consumer Law, which is set out in Schedule 2 of the Competition and Consumer Act 2010, and the Australian Securities and Investments Commission Act 2001 (ASIC Act).

Under the new protections, a court will be able to strike out a term of a small business contract that it considers unfair. Unfair contract terms are an issue of significant concern to small business. Examples include the dominant party asserting a right to unilaterally vary terms, rights to termination and legal redress that are not reciprocated, the application of arbitrary costs and automatic renewal clauses, pay-out requirements and obligations without reasonable grounds.

Under the new protections, a contract will be a small business contract if at least one party has fewer than 20 employees and its value is below the prescribed threshold of $100,000, or $250,000 for a multi-year contract.

In designing the legislative amendment the Government consulted extensively with stakeholders. This ‘transaction value’ threshold was chosen so that the protections apply when small businesses engage in day-to-day, consumer-like transactions, while encouraging them to conduct due diligence on large contracts fundamental to the success of their business.

Beyond these values, it is right and reasonable for all enterprises to seek advice on these larger contracts. It is important to make it clear that we do not believe it is the Government’s role to be ‘contract nannies’. Nor to be injecting agency bureaucrats to paw over specific clauses of multi-million dollar commercial transactions that small businesses should only enter into after much thought, careful examination and taking proper advice.

State and territory governments were actively engaged in the development of this measure and Consumer Affairs Ministers formally agreed to the proposal to amend the Australian Consumer Law in April 2015, as required under the Intergovernmental Agreement for the Australian Consumer Law.

In line with the Corporations Agreement 2002, the Commonwealth notified the states and territories that these legislative protections would be mirrored in the ASIC Act.

Our government is dedicated to ensure Australia is the best place to start and grow a small business.