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Stopping small business bullies


29 June 2010

The King is dead. Long live the Queen! That was the political story of last week. The battle over the crown jewels of the mining industry continues. Underneath this however, there was another story that's received almost no attention. But for Australian business it's huge.

Last week, federal parliament had on the table the second part of a legislative package to force 'fair' contracts in commercial transactions. Have no doubt. This transformation of the Trade Practices Act has teeth and will be used.

There is no business large or small that can ignore this. Everyone will have to review core contract practices. For some this will mean a fundamental challenge to their very business model. For most it will mean careful review of how they conduct business.

Don't think this is just a lawyers' picnic. Mere technical rewording of contracts on a 'set and forget' basis won't do the job. No! The changes needed to your business contracts cut to the heart of how you'll be allowed to do business.

To help on this new journey I've extracted the key parts of the TPA amendments that define what is a 'fair' contract. You'll find them fairly readable. In the same link I've compared these to the 2003 Victorian fair trading laws upon which the new federal laws were in partly modelled and I've extracted the key statements of principle from the Productivity Commission Report that spurred the new act.

On the surface the new laws only relate to business-to-consumer contracts. The consumer unfair contracts law was passed in March this year. The second and current amendments tie in unconscionable conduct to unfair contract protections. Everything will be enforced by the Australian Consumer and Competition Commission.

The laws were originally intended to apply to business-to-business and finance contracts (2008-09) but these were pulled by the Labor government. There was a sequence of events late last year that caused these contracts to be removed and which probably highlights some tension within the federal ALP about how to appropriately regulate business.

Further, there was some likely panic over implications of such changes during the GFC. The Australian Bankers Association argued hard to stop 'fair' contract laws applying to financial contracts and I suspect they had a major influence.

Interestingly, Liberals, the Nationals and Senators Nick Xenophon and Steve Fielding seemed comfortable with business to business contracts being included (to protect small business) and disappointed with the exclusion. In an odd twist it could look like Labor protecting big business.

Now with the laws passed, consumer contracts have to be 'fair.' But (by default) consumer financial contracts and big business to small business contracts are allowed to be 'unfair'. I can't see this being a sustainable situation. Ultimately I suspect financial contracts for consumers will have to be 'fair' as defined by the TPA laws but generous implementation periods may be needed.

For big business to small business contracts, the apparent exclusion may only be technical. Self-employed people (numbering 2 million-plus) can already take action against business to business unfair contracts under the 2006 Independent Contractors Act. It's a reasonably straightforward process in the Federal Magistrates Court but so far only used twice to my knowledge.

It's minimal but successful use, reflects the vagueness in the Independent Contracts Act over the definition of what is an unfair contract. It's left to the discretion of a court to determine based on common law precedent, something most people wouldn't understand. The new TPA laws potentially clarify this.

The TPA laws effectively codify the common law understanding of contract unfairness spelling it out in clear language. Small business/self employed people can now use the TPA definitions to do a practical analysis of unfairness when worried about business to business contracts imposed upon them. The TPA standard becomes a powerful and effective tool to present in an unfair contracts case under the Independent Contractors Act. I'm aware of at least one pending action doing just this.

Through this Independent Contractors Act route, the new TPA consumer unfair contract laws create an application for business-to-small business, unfair contract action. Large businesses and government need to be alert and responsive to this.

The new laws are a shake up. They challenge and will force change to a large amount of orthodox business practice. Think now of the corporate branding implications. To have a company accused of 'unfair' contracts could trash a corporate brand.



From the Business Spectator, June 2010.


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