Small businesses in Australia often find themselves at a disadvantage when it comes to contract terms, as larger companies have more bargaining power. Unfair contract terms can have a detrimental impact on small businesses, and it is important to understand how they can be avoided.
What are unfair contract terms?
Unfair contract terms are provisions that significantly benefit one party to the contract at the expense of the other. They can be difficult for small businesses to spot, as they are often hidden in complex legal jargon. They may include terms that limit liability, restrict the other party’s rights to terminate the contract or renew the contract, or provide penalties for breach of contract that are not proportionate to the harm caused.
Why are unfair contract terms a problem?
Unfair contract terms can cause significant harm to small businesses, as they can result in financial losses, damage to reputation, and loss of business opportunities. Small businesses may not have the resources to challenge unfair contract terms in court, leaving them vulnerable to exploitation.
What are the legal protections for small businesses?
The Australian Consumer Law provides legal protections for small businesses against unfair contract terms. The law applies to standard form contracts, which are contracts that have been prepared by one party and are presented to the other party on a “take it or leave it” basis. The law prohibits unfair contract terms in standard form contracts where the contract is for the supply of goods or services, or the sale or grant of an interest in land.
Under the law, a contract term will be unfair if it:
– causes a significant imbalance in the parties’ rights and obligations;
– is not reasonably necessary to protect the legitimate interests of the party benefiting from the term; and
– would cause detriment (financial or otherwise) to the small business if it were applied.
If a court finds that a contract term is unfair, it will be void and unenforceable.
What can small businesses do to protect themselves?
Small businesses can take a number of steps to protect themselves from unfair contract terms. These include:
– Seeking legal advice before entering into any contract;
– Negotiating contract terms with the other party to ensure they are fair and reasonable;
– Reading and understanding all the terms of a contract before signing it;
– Avoiding contracts with terms that limit liability or restrict the right to terminate or renew the contract; and
– Reporting any unfair contract terms to the Australian Competition and Consumer Commission (ACCC).
In conclusion, unfair contract terms can have a significant impact on small businesses in Australia. By understanding the legal protections available and taking steps to protect themselves, small businesses can avoid being exploited and focus on growing their business.