From 12 November, 2016, protection laws for small businesses will commence, which will essentially have the effect that any term in a standard form contract that is ‘unfair’ will be void and unenforceable.
These laws will apply to standard form contracts where at least one party is a small business and where the upfront price payable is less than $300,000 or $1,000,000 if the contract duration is more than 12 months.
A business will be a ‘small business’ if at the time of entering the contract, it employed fewer than 20 people, although this generally excludes casual staff. The ‘upfront price’ under a contract is the amount paid under the contract, as disclosed on or before the contract is entered into, and does not include any amounts that are contingent on the occurrence of a particular event, such as termination and late payment fees.
Broadly, a term of a small business contract is unfair if it:
- causes a significant imbalance in the parties’ rights and obligations;
- is not reasonably necessary to protect the legitimate interests of the benefited party;
- causes detriment to the other party. In order for the term to be unfair there must be all three criteria.
Businesses have until 12 November 2016 to review and amend their standard form contracts in order to comply with the new laws. These changes will also impact existing contracts if the contracts are renewed or varied after this date. The types of contracts that might apply are Franchise Agreements, Supply Agreements, Finance Contracts, Hire Agreements, Standard Form Leases and Contracts between Principal and Contractor. Small businesses and those doing business with small businesses should seek legal advice to determine whether their standard form contracts might be caught by the new laws.