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Unfair Contracts and the Trade Practices Act:
Explaining amendments to the TPA to create unfair contract provisions

20 June 2010

We've been accumulating stories for some time about self-employed people being 'done over' because of unfair contracts. We've published several examples: but there are many others we haven't covered.

'Fixing' unfair contracts for self-employed people is one of Independent Contractors Australia's primary campaigns. We need systematic processes under law that deal with unfair contracts in a quick, cheap and effective manner. We're very much in favour, for example, of the Victorian Small Business Commissioner laws that enable quick, cheap mediation.

During 2008-10, the Rudd government began moving on the unfair contracts front. It has been following on a process begun under the Howard government who initiated an inquiry by the Productivity Commission into unfair contracts affecting consumers. The report was released in May 2008. The Productivity Commission recommended that small businesses be included in the unfair contract protection laws saying:
    "Small businesses feature in Australia's consumer policy framework in two ways: as suppliers of goods and services, and as consumers dealing with larger businesses. In specified circumstances, the consumer provisions of the TPA and the FTAs apply to the purchase of goods and services by businesses of any size. There has also been a trend to provide explicit protection to small businesses. For example:

    • The TPA contains specific provisions protecting small businesses from unconscionable conduct in their dealings with larger firms.
    • Many specific consumer protection measures encompass small businesses.
    Thus, the consumer provisions in the financial services regulatory regime extend to products or services purchased by small businesses. Also, the self-regulatory Code of Banking Practice applies to small business as well as personal banking.

    A more efficient and effective policy framework would benefit small businesses
    A consequence of the Commission's proposal to use the TPA as the stepping off point for the new national generic consumer law would be to increase protection for small businesses in those jurisdictions that currently employ more restrictive definitions of a consumer. More generally, small businesses would benefit from the Commission's proposals to enhance the effectiveness of the generic law (including in relation to unfair contract terms), and to improve redress for those suffering detriment from breaches of the law. And like other consumers, they would also be assisted by the proposed improvements in disclosure requirements and by additional funding for consumer advocacy and research."

    [Review of Australia's Consumer Policy Framework, Vol 1, pp 53-54. Emphasis added]
Following this report, all State, Territory and the Federal government/s agreed to create a consolidated, national unfair contracts law. The federal Treasury released a discussion paper in February 2009.

The paper canvassed protection from unfair contract both for business-to-consumers and business-to-businesses. There were a large number of submissions, with near-universal support for protection from unfair contracts.

However
  • the Australian Bankers Association argued that if unfair contracts arrangements were applied to finance contracts, bank and financial lending would be adversely affected in a massive way.
  • Others argued that business-to-business unfair contract laws under the TPA (particularly for small business) laws were unnecessary because such laws already exist under the Independent Contractors Act.
Following this consultation, the Rudd government under the then Minister for Competition Policy and Consumer Affairs, Chris Bowen, moved amendments to the Trade Practices Act which were intended to create the Australian Consumer Law Act. This Bill would have created unfair contract laws covering:
  • Business-to-consumer contracts
  • Business-to-business contracts
  • Finance contracts
and consolidating some 17 State and Federal laws into one piece of national 'unfair contracts' legislation. The proposed laws pretty much followed the full recommendations of Treasury and other reports mentioned earlier. These Bowen amendments appeared to have had support from the federal coalition, as well as Senators Fielding and Xenephon, and probably would have passed into law. But the Bill drew strong opposition---particularly from the finance sector and large business representatives. In mid-2009, Prime Minister Kevin Rudd reshuffled his Cabinet and Senator Bowen lost portfolio responsibility for these unfair contract amendments to the TPA. The new minister in charge, Dr Craig Emerson, proceeded with the TPA changes but with two major changes, removing:
  • business-to-business contracts and
  • finance contracts
The new laws are being implemented in 2010, with two pieces of legislation. The first bill was passed in March 2010. The second bill is currently before parliament (June 2010).

Running in conjunction with this are amendments to the Franchising Code and unconscionable conduct---both of which have significance for all small/micro/self-employed business people.

Independent Contractors Australia is disappointed that the business-to-business and finance contracts have been removed. The amendments to protect consumers from unfair contracts are highly welcome. But an opportunity is being missed, not only to create protections for self-employed business people, but also to improve the functioning of business and the Australian economy. We will expand on our arguments shortly.

Summary of links

ICA's examples of self-employed people being 'done over', 2009-10:
The case of "Tom" versus Department of Education, Employment and Workplace Relations (November 2009)
One of the Worst Contracts We Have Seen (January 2010) and
Another Bad Contract (June 2010)

Small Business Commissioner Victoria. Mediation services

Productivity Commission report on Unfair Contracts, May 2008

Treasury Discussion Paper on Unfair Contracts

Submissions to Treasury Discussion paper

The 1st Australian Consumer Law Act (passed March 2010)
The second bill currently before parliament (June 2010)