The Australian Consumer Law (ACL) protects consumers from unfair behaviour by businesses that sell goods and services. The ACL attempts to reduce the power that businesses have over parties with fewer resources, so that businesses cannot take unfair advantage of smaller businesses or consumers.
In November 2023, new laws were introduced to make it illegal for businesses to include unfair contract terms in their standard form contracts.
These changes affect any businesses that rely on pre-prepared terms and conditions or client agreements to govern their transactions with customers or other businesses.
What is a standard form contract?
The changes to the ACL target contracts that are:
- For the supply of goods or services, or the sale of an interest in land; or
- Where one party is a small business. To be considered a small business, the business must employ less than 100 people or have an annual turnover of less than $10 million.
The contract must also be a ‘standard form’ contract. Standard form contracts usually have the following characteristics:
- One party has bargaining power over the other party;
- One party prepares the contract, with little to no discussion with the other party; and
- The other party does not have any room to negotiate on the terms of the contract.
Examples of standard form contracts include terms and conditions for digital subscriptions (yes, those terms and conditions that nobody reads!) or terms of a gym membership.
What are the new changes?
Unfair contract terms are those that would cause significant imbalance in the parties’ rights under the contract, are not reasonably necessary to protect the legitimate interests of the benefitting party, and would cause detriment to a party if they are relied upon.
Previously, the only penalty for an unfair contract term would be that the term becomes void or unenforceable.
The recent law reforms now mean that there are increased penalties to businesses using unfair contract terms. These penalties now include:
- For individuals, a maximum financial penalty of $2.5 million; and
- For businesses, a maximum financial penalty of $50 million.
How can businesses avoid unfair contract terms?
The easiest way for businesses to avoid unfair contract terms is to have your contracts reviewed or prepared by a lawyer. Our lawyers are experts in consumer law and will ensure that your contracts comply with the Australian Consumer Law. You can book a free 20-minute consult here to get started.
