Consultation process for unfair contract terms must listen to small business

| March 30, 2019

Consultations on changes to legislation on unfair contract terms (UCT) for small businesses must adequately consult and take into account the views of the small business sector and the regulators, according to the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell.

“We welcome the proposed UCT changes by the Coalition and expect the Regulation Impact Statement process to involve proper consultation and engagement with the sector and not just the big end of town which has a vested interest in watering it down,” Ms Carnell said.

“The proposed changes would remove the imbalance of power between large and small businesses.

“Small businesses do not have the power to negotiate terms that are unfair for fear of retribution or afford costly legal proceedings that could send them broke.

“In our assistance function, which deals with small business disputes, the majority of contracts still contain clauses the Australian Competition and Consumer Commission and Australian Securities and Investments Commission (ASIC) have already identified as unfair.

“Making UCTs illegal and attaching civil penalties to breaches would level the playing field as there would be a greater incentive not to include them in standard form contracts offered to small businesses.

“It would also mean the regulators could better enforce the legislation.

“We welcome redefining small business to employers of less than 100 people at the time of contract or with an annual turnover less than $10 million as it better reflects the capital requirements of small businesses.

“Removing the value threshold would include the majority of loans taken by a small business to grow, and capital intensive small businesses such as primary producers.

“We commend the proposal to extend UCT protections to government contracts and those of the insurance sector.

“We also support the proposal to better promote the UCT provisions as our experience indicates they are unaware of the legislation.”