Businesses encouraged to review contracts before new penalties come into effect

Businesses encouraged to review contracts before new penalties come into effect

The ACT Government is encouraging businesses to review their standard form contracts – and remove or amend any unfair contract terms – before new penalties come into effect.

From 9 November 2023, changes to the Australian Consumer Law will prohibit businesses from proposing, using or relying on unfair contract terms in standard form contracts.

The changes will allow courts to impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts, so compliance with the law should be taken seriously.

The change is designed to better protect consumers and small business customers.

A standard form contract is a pre-written contract where the customer has little or no opportunity to negotiate the terms of the contact. They are commonly used for the supply of goods and services, such as the terms and conditions governing an electricity plan or a gym membership.

Examples of contract terms that may be unfair include terms that penalise only one party for breaching or ending a contract; or terms that allow only one party to change the terms of the contract.

The maximum financial penalty for a business under the new unfair contract term laws will be the greater of:

• $50 million three times the value of the “reasonably attributable” benefit obtained from the conduct (if a court can determine this); or
• 30 per cent of adjusted turnover during the breach period (if a court can’t determine the value of the “reasonably attributable” benefit obtained).

The maximum penalty for an individual under the new laws will be $2.5 million.

The changes will apply to standard form contracts made or renewed from 9 November 2023; and a term of a contract that is varied or added from 9 November 2023.

Other changes from 9 November 2023 include:

• The protection of more businesses under unfair contract term laws, with the threshold for small business contracts increasing to include businesses that employ fewer than 100 people or have an annual turnover of less than $10 million.
• The removal of the contract value threshold.
• Clarification of other aspects of the laws, including more clearly defining a ‘standard form contract’.

Minister for Consumer Affairs Shane Rattenbury said he strongly encouraged Canberra businesses to review their standard form contracts now before penalties were enforced.

“The introduction of financial penalties is a significant incentive for businesses to ensure their standard form contract terms are fair,” Minister Rattenbury said.

“These changes will better protect consumers and small business customers entering standard form contracts which are largely presented on a ‘take it or leave it’ basis, such as signing on to a new electricity supplier or joining a gym.

“The ACT Government will continue monitoring compliance with unfair contract term laws.

“I encourage businesses to visit the Australian Competition and Consumer Commission website for more information about standard form contracts and the upcoming changes. Businesses may wish to seek independent legal advice if they have questions about how the new laws will apply in their specific situation.”

More information about the changes to unfair contract term laws – including information for businesses and consumers – is available on the ACCC website. Tips for businesses to consider when reviewing their contracts can also be found here.