Know your obligations: keep your small business contracts fair

Summary: Do you run a business? Do you offer standard form contracts to other businesses? If so, you should be aware that the Australian government has introduced a law to protect small businesses against unfair contract terms.

Published: 16 November 2015

Does your business use standard form contracts when dealing with other businesses? If you do then you should be aware that the Australian government has put in place a law to protect small businesses from unfair contract terms.

The protections apply to contracts with small businesses that: employ less than 20 employees, and where the contracts are valued up to $300,000 or up to $1 million for contracts longer than one year.

So how do you know if you offer standard form contracts? A standard form contract is an agreement where the terms and conditions are set by one of the parties, while the other party has little or no opportunity to negotiate. In other words the contract is offered on a "take it or leave it" basis.

Of course there isn't anything wrong with using a standard form contract, but it is important for you to know that under the law, standard form contracts with small businesses can't include terms that are unfair.

Examples of terms that might be unfair include terms that: allow you but not the other business to cancel or change the contract, or allow you but not them to limit or avoid obligations, or penalise them but not you for breaking the contract.

If your standard form contract does contain an unfair term, that term can be declared void (which means it can't be relied upon). The rest of the contract will usually remain in effect.

So if your company does offer standard form contracts, you should review your terms and conditions and ask yourself the following questions. Does the term cause a significant imbalance between your business' rights and obligations, and those of the other party? Is the term necessary to protect the interests of your business? Would the term cause detriment to the small business if you tried to enforce it? Is the term transparent? And is the term fair when considered as part of the whole contract?

This law applies to contracts that are entered into or renewed on or after 12 November 2016. If you would like more information about doing the right thing with your contracts, visit the ACCC website.