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BlackBay Insights

  • Writer's pictureSally Westlake

Key Changes in Unfair Contract Term Regulation

In our earlier article, "UCT Regime Changes November 2023: BlackBay Lawyers Insights", we explored the foundational aspects of these reforms and their anticipated impacts. In this update, we delve deeper into the recent changes and introduce the upcoming jurisdiction of the Fair Work Commission to safeguard independent contractors from unfair contract terms.


The expansion of the unfair contract term regime (UCT) in November 2023 was a highly anticipated update to the Australian Consumer Law (ACL). The scope was expanded, penalties introduced and judicial powers enhanced, bringing greater protection to consumers and small businesses in situations of contracts with a significant power imbalance.


These recent and upcoming changes signify a pivotal shift towards fairer contractual practices in Australia. As these changes take effect, businesses must review and adjust their standard form contracts as necessary to ensure compliance with the updated UCT provisions.


To briefly recap, a contract term is 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 who would be advantaged by such a term; and

  • would cause detriment to a party if the term were to be applied or relied on.


and a standard form contract is:

  • prepared by a business;

  • contains a set of generic terms and conditions;

  • not negotiated between parties; and

  • presented on a 'take it or leave it' basis.


As a result of the changes a contract may now be considered a standard form contract despite:

  • an opportunity to negotiate changes to minor or insubstantial terms of the contract;

  • the ability to select a term from a range of options determined by the party that prepared the contract; or

  • the party that prepared the contract letting a third party negotiate the terms of a different contract.


As consumers, we often enter into standard form contracts, such as for mobile phones, gym memberships, insurance, home loans, and utilities.


For small business operators, any standard form contracts made or entered into must not contain unfair contract terms if the other party is a consumer or another small business. The regime also applies to small businesses entering into standard form contracts for financial products, or the supply/possible supply of financial products or services.


By the recent changes, the definition of a ‘small business’ has expanded to include any businesses that:

  • has fewer than 100 employees (previously 20); or

  • makes less than $10 million in annual turnover.


Changes to the ACL and the Australian Securities and Investments Commission Act 2001 (ASIC Act) mean that UCTs now contravene these legislations. In addition to the existing factors, a court will also now consider whether and how many times the party that prepared the contract has also similar contracts with unfair terms.  

The amending legislation introduced financial penalties for businesses including or relying on an unfair contract term and granted courts greater flexibility in ordering remedies. It is now an offence to enter into a standard form consumer or small business contract that contains or seeks to rely on an unfair term.


Commenting on the reforms back in September 2023, ACCC Deputy Chair Mick Keogh said:

“The test for whether a contract term is unfair has not changed. However, businesses now could potentially face substantial penalties for contravening the law. This will better protect consumers and small businesses who have limited bargaining power, expertise, and ability to negotiate or assess standard form contracts.”

"There was previously little motivation for businesses to comply with the law, despite the ACCC’s compliance and enforcement actions. We strongly urge businesses to review their contracts now to ensure they comply."


Upcoming Fair Work jurisdiction  


In changes are set to commence 26 August 2024, amendments to the Fair Work Act 2009 will establish a new jurisdiction in the Fair Work Commission (Commission) for UCTs. The Commission will have jurisdiction to hear and resolve disputes from independent contractors earning below a high income threshold regarding the terms of their services contract. 


If the Commission is satisfied that one or more unfair contract terms exist in a services contract, an order may be made to either:

  • set aside all or part of a services contract; or

  • amend or vary the terms of a services contract.


In determining whether a services contract is unfair, the Commission may consider:

  • the relative bargaining power of the parties;

  • whether the services contract as a whole displays a significant imbalance between the rights and obligations of the parties;

  • whether the contract term under consideration is reasonably necessary to protect the legitimate interests of a party to the contract;

  • whether the contract term under consideration imposes a harsh, unjust or unreasonable requirement on a party to the contract;

  • whether the services contract as a whole provides for total remuneration for performing work that is less than that of comparable employees or independent contractors;

  • any other matters the Fair Work Commission considers relevant.


Independent contractors who earn above the contractor high income threshold will continue to have access to remedies for unfair or harsh contract terms under the Independent Contractors Act 2006.



 

Profile of Sally Westlake, BlackBay Lawyers Associate.

ABOUT THE AUTHOR

Sally Westlake is a commercial generalist with an impressive record across litigation, transactional and advisory matters.

 

She has niche expertise in copyright gained from her in-house career at APRA AMCOS and is experienced in the negotiation and drafting of agreements. Since moving to private practice she’s focused on commercial disputes and litigation, having appeared in the District and Supreme Courts of New South Wales, advised high-profile individuals in defamation matters, directors in insolvency litigation, and assisted the defence of a large corporation in a class action lawsuit.

 

Empathetic yet competitively driven, she is a fierce advocate for her clients and is committed to achieving their best outcomes.

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