Beyond closing loopholes:
Significant penalties now apply under changes to the Unfair Contract Terms regime
Whilst the changes to Unfair Contract Terms (UCT) do not extend to employment contracts, they may apply to independent contractors. The following article outlines essential information about UCTs for businesses.
On 9 November 2023 the long-awaited reforms to Australia’s existing unfair contract terms law (UCT regime) in the Competition and Consumer Act 2010 (Cth) (CCA), including the Australian Consumer Law (ACL) and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act), came into effect.
The changes to the UCT regime affect various aspects of how an organisation may engage with contractors. Organisations should review how they use their independent contractor agreements and their terms to ensure they are compliant with the change in legislation.
The changes to the UCT regime have two main parts:
- broadening the application of the regime by expanding the definition of a ‘small business contract’; and
- introducing, for the first time, penalties relating to UCTs.
For further information about the changes to the UCT regime, see our article on Significant legislative changes to unfair contract term regime.
What do the UCT changes mean for business engaging independent contractors?
The UCT changes do not apply to employment contracts.
However, an independent contractor agreement is caught by the updated UCT regime if it:
- is a small business contract, which is a contract:
- for the supply of goods or services; and
- under which, at least one of the parties to the contract, employs 100 or less people, and/or has had less than $10 million in annual turnover during the previous financial year; and
- is a standard form contract, which depends on a range of factors including the respective bargaining power of the parties; whether the contract was prepared without discussion between the parties on its terms (i.e., on a “take it or leave it” basis); whether the terms are not specific to the parties circumstances; and whether the contractor has had the opportunity to truly negotiate and influence the terms of the contract.
Whether an independent contractor agreement will meet the standard form contract definition will be fact specific.
A template contract used by a business which regularly engages independent contractors on the same terms and conditions (which are not generally negotiable by the contractor) will more likely be considered a standard form contract.
On the other hand, if an independent contractor agreement is substantially negotiated with a contractor (perhaps where there is a handpicked nominated representative performing the services and the difference in bargaining power between the parties is less marked), it is less likely that the independent contractor agreement will meet the definition of a standard form contract.
What is an unfair term?
If your contract is caught by the updated UCT regime the type of contract terms that are or may be unfair has not changed.
The UCT laws provide that a contract term is an ‘unfair’ term where it:
- causes a significant imbalance in the parties’ rights and obligations arising under the contract;
- is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- could cause detriment to a party if it were to be applied or relied on.
For further information about unfair terms in contracts, see our article on Unfair contract terms.
What are the new penalties for breaches of the law that now apply?
Under the ACL, individuals may be fined up to $2.5 million per contravention.
For corporations, maximum penalties per contravention are the greater of:
- $50 million;
- three times the value of the benefit conferred by the exercise of the particular contractual term (if that can be determined); or
- if the value of the benefit cannot be determined, 30% of the adjusted turnover during the breach turnover period for the contravention.
What contracts will be captured under the updated UCT regime?
Changes to the UCT regime now apply to contracts made on or after 9 November 2023, including any contracts which are renewed and any term that is varied or added to an existing contract on or after 9 November 2023.
What can be done to avoid penalties?
The short answer: review, review, and review to determine whether your independent contractor agreements are caught by the updated UCT regime and, if so, draft your contract terms to avoid the unfairness prohibited by the UCT regime.
There is now more significant risk for individuals and businesses who use standard form independent contractor agreements. Some of these contracts may require modification to meet the recent changes to the UCT regime, even where the contracts have previously been reviewed for compliance with the previous regime.
All businesses engaging contractors which may be considered a ‘small business’ under the updated definition should carefully review their independent contractor agreements. This includes closely reviewing and monitoring all standard form contracts to ensure they do not include any UCTs.
- Since 9 November 2023, proposing, using or relying on unfair contract terms in standard form contracts and small business contracts may result in significant penalties under the updated UCT regime.
- What is a ‘small business contract’ has been expanded, meaning that more contracts are subject to the UCT regime.
- The changes to the UCT regime apply to:
- contracts made or renewed on or after 9 November 2023; and
- a term of a contract that is varied or added on or after 9 November 2023.
- The ACCC and ASIC have warned that unfair contract terms in consumer and small business contracts are a 2023-24 enforcement priority.
- Independent contractor agreements may be caught in the new UCT regime and should be reviewed.
Find out more
If you believe you have any independent contractor agreements which may need reviewing, or would like to find out more about the unfair contract terms regime, please contact your Maddocks relationship partner.
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