Unfair Contract Terms and Small Businesses: What You Need to Know
Small businesses often struggle to compete against larger corporations. In addition to the challenge of gaining market share, they also face obstacles in contract negotiation. Large corporations often have the upper hand when it comes to negotiating contracts, and small businesses may find themselves accepting unfair terms in order to secure a deal. This is why the Australian Competition and Consumer Commission (ACCC) has taken steps to protect small businesses from unfair contract terms.
What Are Unfair Contract Terms?
Unfair contract terms are provisions that give one party an advantage over the other party in a contract, and that are not necessary to protect the interests of the advantaged party. Such terms can be found in contracts related to a range of business activities, including the supply of goods or services, and franchising agreements.
An example of an unfair contract term is a clause that allows one party to unilaterally vary or terminate the contract, without providing the other party with notice or an opportunity to object. This type of clause gives the advantaged party an unfair advantage over the other party, and can lead to unexpected termination of the contract, or changes to the terms of the agreement that put the disadvantaged party at a disadvantage.
Why Are Unfair Contract Terms a Problem for Small Businesses?
Small businesses often lack the bargaining power and legal resources of larger corporations. This means that they may be more likely to accept unfair contract terms in order to secure a deal or avoid legal disputes. In addition, small businesses often rely on repeat business from long-term customers, so they may be more vulnerable to unfair contract terms that can lead to unexpected termination of contracts or other breaches of the agreement.
How Does the ACCC Protect Small Businesses?
The ACCC has jurisdiction to investigate and take action against businesses that use unfair contract terms in their dealings with small businesses. In 2016, the ACCC introduced a new law that prohibits unfair contract terms in standard form contracts with small businesses. The law applies to contracts with a value of less than $300,000, or less than $1 million for contracts that last longer than 12 months.
Under this law, if a contract contains an unfair term, the term may be declared void and unenforceable, or the contract may be varied to remove the unfair term. Businesses that continue to use unfair contract terms may be subject to fines or other penalties.
What Can Small Businesses Do to Protect Themselves?
Small businesses should be vigilant when negotiating contracts with larger corporations, and seek legal advice if they are unsure about the fairness of the terms. They should also be aware of their rights under the ACCC’s unfair contract terms law, and raise any concerns they have with the other party before signing the contract.
In conclusion, unfair contract terms can be a major problem for small businesses. They can put small businesses at a disadvantage in negotiations, and may lead to unexpected termination of contracts or other breaches of the agreement. However, the ACCC’s unfair contract terms law provides a level of protection for small businesses, and businesses should be aware of their rights under the law when negotiating contracts.