Are Your Contracts Fair? Understanding Consumer Protections in Australia

What Are Unfair Contract Terms?

When signing a contract, whether for goods, services, or leasing property, both parties expect the agreement to be fair. However, some contracts contain terms that heavily favour one party over the other. The Australian Consumer Law (ACL) protects consumers and small businesses from unfair contract terms that create an imbalance in rights and obligations.

A term may be considered unfair if it:

• gives one party significantly more rights or powers than the other;
• isn’t necessary to protect the advantaged party’s legitimate business interests; or
• would cause financial or other harm to the disadvantaged party if enforced.

How Could This Apply To You?

To bring this to life, imagine you’re a small business owner signing a cleaning services contract. The contract allows the service provider to increase prices at any time without consulting you — a classic example of an unfair term that leaves your business vulnerable to unexpected costs.

On the flip side, if you’re the service provider, a contract that forces you to continue providing services for an extended period without the ability to adjust pricing or terminate the agreement could also be unfair and detrimental to your business.

Who Is Protected?

The unfair contract terms regime applies to standard form contracts — these are pre-prepared contracts where one party has little or no ability to negotiate terms. Initially, these protections only applied to consumers, but from 12 November 2016, they were extended to small business contracts.

A small business contract applies where:

• The contract involves the supply of goods, services, or the sale or lease of land; and
• At least one party operates a business with fewer than 100 employees or has an annual turnover of less than $10 million.

Recent reforms from 9 November 2023 have strengthened these protections, with businesses now facing significant financial penalties if they include unfair terms in their contracts.

How Could This Impact Your Business?

For businesses that rely on standard form contracts, it’s critical to ensure your contracts are fair, transparent, and compliant. Including unfair terms could not only result in those terms being declared void but could now lead to financial penalties and reputational damage.

For small businesses, these changes provide greater protection and the ability to challenge contract terms that appear one-sided or unreasonable.

Key Takeaways:

• Businesses must review and update standard contracts to ensure compliance with the ACL.
• Small businesses have stronger protections against one-sided contract terms.
• Unfair contract terms can now attract financial penalties, making compliance more important than ever.
• Transparent and balanced contracts help build better relationships and reduce the risk of disputes.

Understanding and applying these protections can help businesses foster fairer, more trustworthy commercial relationships.