Big firms need to play catch-up on fair contracts

Assistant Treasurer and Minister for Small Business Kelly O'Dwyer in Question Time in the House of Representatives Chamber, Parliament House in Canberra. Picture Kym Smith

The unfair contracts legislation is the biggest business reform introduced by the 44th Parliament because it affects around 1.5 million people and hundreds of thousands of business contracts.

The sheer enormity of the impact of the Turnbull government legislation is now starting to be understood in the business and government communities. Large company and government lawyers, auditors and executives are now starting to understand the task ahead of them. But because few businesses understood the legislation, which passed the Senate in November, there is going to be a scramble to catch up.

For laggard companies it may be the June 30 accounts that causes their auditors and others to focus on the impact of the legislation. On June 30, auditors will need to report to shareholders that a large number of the corporation’s contracts with small enterprises will be void in November even though the contracts might have up to a year to go.

The vast majority of contracts signed by large corporations and government organisations with small enterprises (businesses employing less than 20 people), including independent contractors, are prepared by the large organisation’s lawyers. The small enterprises are told to “sign or else”. Almost inevitably these standard contracts are grossly unfair to the small enterprise and contain a series of clauses which give the large organisation wide powers to change the contract. The small business does not have matching powers. And so from mid-November, 2016, if these unfair contracts involve $300,000 or less over one year and up to $1 million for up to three years, they will be void.

Companies are now starting to understand that shareholders will have to be alerted to the fact that a whole raft of new negotiations will need to take place.

Of course, if the contract has unfair clauses but has been the subject of a genuine negotiation, it is not covered by the act.

Companies will now look much more closely at how their operations are organised and how their contracts should be framed to maximise productivity and involvement by the contractor. Many organisations will find they do not have the skills to undertake this task and there will be a scramble to get people with negotiating skills.

The Independent Contractors Association has calculated that there are some 1.5 million Australians who are involved in contracts either as the contractor or the employee of the contractor.

That makes the negotiations a massive one for the corporate and government communities. The ACCC will police the new act and prior to November plans to be knocking on the doors of the large organisations to alert them to their bad contracts.

The unfair contracts legislation would never have been passed but for the change of leadership in the Coalition government. Although unfair contracts legislation was promised by Tony Abbott in 2013 election campaign, the original Abbott legislation was designed to have almost no impact because it covered only small contracts. On the morning of September 14, the ALP, Greens and cross benchers combined to amend the legislation raising the limit to $300,000. On the afternoon of September 14, the Government said it would abandon the legislation. On the evening of September 14, Malcolm Turnbull became Prime Minister and a day or two later he did a deal with the crossbenchers to accept the Senate amendments.

Under the terms of the legislation those industries or organisations who believe they should have an exemption from the act had until February 29 to apply. If they haven’t applied by now, it’s too late.

I do not know which industries/organisations have made applications but I know of one or two organisations that have put in detailed submissions. And at least one will probably get approval. But many were poorly thought out by the industry bodies that made the presentation.

The person handling the claims will be the Assistant Treasurer Kelly O’Dwyer and hopefully she will reject the submissions that have been put together without much thought.

The proposed exemptions must then go to the Senate and I know that the Senators are watching very closely so any proposed exemptions will need to be very well argued to get through the Senate.

Making contracts fair is going to be a lot of work for the companies and government organisations and many will be protesting wildly. But they have actually had a lot of time given the Liberals’ 2013 promises.

Companies should have been making their contracts fair a long time ago.

Unfortunately the vast majority of companies didn’t adjust, so will simply have to catch up. For those that need a reference point, I link to an article I wrote earlier this year that list some of the clauses that should not be in the contracts.

Footnote: A friend of mine looked up the legislation and couldn’t find my list. It is actually in the consumer unfair contract legislation. The business unfair contract provisions are an extension of the consumer legislation.