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Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Abbott's 'small' reform step is a big deal

Tuesday, April 28, 2015

The Abbott Government is moving forward with a microeconomic reform that will prove a comparatively simple and costless measure. Small Business Minister Bruce Billson has just released the draft (exposure) Bill to extend unfair contract protections currently available to consumers to small businesspeople.

In initiating this, the government is locking in a central plank of its small business election promise and reform package. The measure has wider and more positive implications for how the economy operates than most people might think.

Unfair contract protections for consumers were introduced in 2010. The laws were conceived and developed under the Howard Government and followed through by Labor.

Initially the protections were meant to apply to both consumers and small businesspeople. But Labor sided with the big business lobby that opposed the laws and did not apply the protections to small business.

The Coalition Government is fixing this.

The unfair contract protections are contained in Australian consumer law. They only apply to ‘standard form’ contracts. Contracts that are genuinely negotiated on an individual basis are not covered. The laws are effectively a codification of the principal elements of commercial contracts that the courts look to under common law.

At its most basic, a clause in a contract that enables one party to change the terms or the price of the contract without reference to or agreement from the other party is ‘unfair’ under the laws. That specific clause is void and inapplicable, but doesn’t knock out the rest of the contract.

The reason that the laws were introduced is because there was a lot of evidence that large businesses routinely wrote consumer contracts that enabled the business to change the terms at will. Mobile phone contracts were a specific example.

Big businesses objected to having this contract discipline applied to them. But the large firms I have spoken with now say the laws are good. It’s improved their customer relations, their staff are more client-focused and disputes are down.

But the small business area has remained a gaping sore of, frankly, exploitation. In particular there’s almost a systemic process in the consultancy area of contracts that will breach the new small business unfair contract laws.

Consultants are routinely engaged through contract management agencies that have standard form contracts in place that are patently unfair. Contract terms can be changed at any time without the consultant’s approval.

We collated and supplied a long list of examples of such unfair contracts in our submission to the inquiry into unfair contracts last year. Now these systemic problems should be closed down when the law comes into effect, planned for early next year. An example list of the banned clauses is summarised here.

The draft Bill amends the existing consumer unfair contract provisions to include small businesspeople. It applies to firms with under 20 employees. As a draft, the Bill looks straightforward. But it needs clarification under one clause where the protections only apply to contracts where “the upfront price payable under the contract does not exceed $100,000”. What this means needs to be more clearly defined because on one potential reading, it could perhaps exclude consultants earning more than $100,000 under a contract.

The principles and reasoning behind these unfair contract protections for small businesspeople are sound.

Small businesspeople are, in some ways, much like consumers. Around half are one-person operations; the other half that employ people are just individuals who’ve taken on the responsibility of employing others. As individuals, small businesspeople have no more financial or knowledge capacity to assert their contract rights that do individual consumers. They are just people; they can’t afford to pay bucket loads of money to lawyers over unfair contracts.

This reform is about better and more honest business practices in the community. By applying the discipline of fair contracts to big businesses, and government organisations, the quality of business in Australia will be enhanced. This is about increasing the levels of commercial trust. And it is trust in the systems of commercial law and transactions that makes for a healthy and expanding economy.

This is an important and significant reform step. It might seem ‘small’, but it’s actually quite ‘big’.

[First published in Business Spectator, April 2015]

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