New protection for small business when dealing with “The Big End of Town”

Small businesses can be particularly exposed to unfair contractual terms when dealing with the big end of town.

New laws offering protection to small businesses against unfair contract terms will come into force on 12 November 2016.

The proposed laws will deem unfair contractual terms to be void if, at the time of entering into a standard form contract, the small business had fewer than twenty employees and the contract value did not exceed $300,000 (or $1 million for contracts longer than 12 months). The rest of the contract will remain in effect to the extent that it complies with the new law.

A standard form contract is essentially one where the terms and conditions are dictated by one party (most commonly, the larger business), and the other party has little or no opportunity to negotiate the terms of the contract. Such contracts are often offered on a “take it or leave it” basis.

Broadly, a term may be unfair if it:

  • causes a large imbalance between the rights and obligations of each party;
  • is not needed to protect the interests of either party; and
  • would cause harm to the smaller business if retained in the contract.

For example, a term may be unfair if it allows one party (but not the other) to:

  • avoid or limit the performance of the contract;
  • vary, renew or terminate the contract; or
  • vary the characteristics of the goods or services to be supplied under the contract.

A 12 month transitional period will apply prior to the commencement of the new law. During this time, large businesses should review their standard form contracts to determine whether they contain provisions which may be considered to be “unfair”. Such provisions should be amended or deleted.

Whether you operate a small or large business, Fletcher Law can advise you on appropriate next steps.