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Businesses beware: the Unfair Contract Term Laws are changing with increased penalties



Proposed changes to the Unfair Contract Term (UCT) laws, will strengthen the laws and expand their reach.  To prepare for the changes, all businesses should determine how they will be affected and make the necessary amendments to their contracts to ensure compliance. 

The major changes to be aware of are:

Significant financial penalties for proposing, applying or relying on unfair contract terms in standard form contracts

Standard form contracts are contracts that use standard terms, conditions and clauses, with no ability for consumers or businesses to negotiate changes.

Penalties for each unfair term for individuals are up to $500,000 and for businesses the greater of:

  • $50 million;
  • Three times the value of the benefit if determinable; or
  • If not determinable, 30% of annual turnover for previous 12 months.

Expansion of “small business contract”

Where at least one party:

  • Employs fewer than 100 employees (increased from 20); or
  • Had less than $10 million in annual turnover in the previous income year,

the UCT provisions of the Australian Consumer Law will apply.

What does this mean?

The expanded definition of “small business” means that more businesses need to comply and ensure that their staff understand the obligations. As well as making these terms unlawful, the introduction of significant financial penalties for each infringement increases the need to focus on compliance.

What should be done now?

The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 recently received Royal Assent. The changes will become effective in November 2023. In the meantime, there are steps businesses can take to ensure they will then be compliant:

  1. Assess if your business or customers will meet the new definition of a “small business”.
  2. Review any standard form contracts, identify unfair contract terms and decide whether the terms can be amended, or whether they are reasonably necessary to protect legitimate interests.
  3. Remove any unfair terms from all standard form contracts.
  4. Train staff to understand the changes and what they mean for your business.

For a step-by-step guide to ensure your business will comply with the new laws at the commencement date, please refer to the FCW Lawyers Roadmap.

To read our article on “Unfair Contract Terms in Consumer Contracts,” click here.



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