Big business needs to get with the contract overhaul program

The most important shift in business policy undertaken by the Turnbull government will come into effect tomorrow.

 

Starting on Saturday November 12, vast areas of the Australian business community will need to change the way they do business as the unfair contracts legislation comes into operation.

The ‘policeman’ of unfair contracts — the Australian Competition and Consumer Commission has now completed a study of seven industries -advertising, telecommunications, retail leasing, independent contracting, franchising, waste management and agriculture — and found that large enterprises in those sectors were riddled with unfair contracts.

Starting next week, it will be concentrating on those industries.

Then, later, it will move to the really big fish — banking and building — which have some of the worst unfair contracts.

My regular readers will know that, along with Independent Contractors Australia’s Ken Phillips, I played a role in helping the Parliament pass the legislation which aims to change the way larger enterprises deal with smaller enterprises.

I believe with a passion that in the decades to follow much more employment will be generated by small enterprises and unfair contracts are the first step in adjusting the community to this process.

The second step requires changes to the anti-small business culture that exists in parts of the tax office, which has been revealed in the Douglass case (ATO attacks mum and dad partnerships, October 19).

The unfair contracts legislation covers so called “standard form” contracts where there has been no negotiation and where one of the parties has less than 20 employees.

To be covered by the legislation, the upfront price in the contracts must not exceed $300,000 for one year or $1 million for multi-year contacts.

There are 2.1 million small enterprises in Australia and, on average, ACCC research shows that a majority of small business were offered eight standard form contracts each year. For the most part they don’t have the expertise to review the contracts and spend very little time on that task.

It appears that somewhere in the vicinity of eight to 10 million contracts will have unfair clauses when they come up for renewal. The act will not make the total contracts void but it will void the unfair clauses.

Because only new or renewed contracts are affected it will take time for the full impact of this big shift to hit home.

The ACCC has produced a report (click here to read) on its activities to date which looks at the sort of contracts that will run afoul of the new act.

In its review of seven industries, the ACCC picked out 13 companies that fully participated in the review — Australia Post, Bakers Delight, Coca-Cola Amatil, Facebook, Fairfax, Google, News Limited, Optus, Scentre Group (owner of Westfield shopping centres), Uber, Vicinity Centres and Vodafone.

To that list could be added the Shopping Centre Council who has been active in amending contacts. In other words, these enterprises were shown how their contracts were unfair to small enterprises and agreed to look at ways of amending them prior to the act coming into operation.

Although the review focused on retail and telecommunications, Telstra, Woolworths and Coles were noticeably absent from the list of “co-operating” firms.

Telstra’s Andy Penn, Woolworths Brad Banducci and Coles John Durkan have a lot of work to do because, almost certainly, they gave hundreds of thousands of supply and business customer contracts that have clauses that will be voided.

Without naming the supermarket chain concerned, the ACCC mentions that one retail trader has the right to walk onto a farm at any time of the day or night without warning.

Once those contracts are renewed, farmers will not have the old-fashioned right to shoot the supermarket trespasser but the city slickers will also no longer have the unrestricted right to enter.

To be unfair under the unfair contracts legislation, a term of the contract must cause a significant imbalance in the parties’ rights and obligations; not be reasonably necessary to protect the legitimate interests of the party advantaged by the term, or cause detriment (financial or otherwise) to a small business if it were to be applied or relied upon.

In the industries studied there were thousands of contracts that gave the large enterprises:

• . The ability to unilaterally vary all terms (or at least those that have a significant bearing on the contractual arrangement) in an unconstrained manner.
• . Broad and unreasonable powers to protect themselves against loss or damage at the expense of the small business by imposing broad indemnities or excessive limitations of liabilities.
• . An unreasonable ability to cancel or end an agreement as it suits them.

And, so, in advertising — an industry which I am very familiar with — the ACCC found that a majority of the advertising contracts reviewed contained terms which gave the publisher the ability to remove advertisements for any reason, limited the liability of the publisher unfairly and required wide indemnities.

These sorts of provisions have been in contracts for generations. I never thought of them as “unfair” but they clearly are. And the same applies to other industries.

While it will annoy a vast array of large enterprises, the new legislation is vital for the nation. It is the most important change the Turnbull government has undertaken in the business arena.