From 12 November, 2016 the Australian Consumer Law will provide that a term of a small business contract is void if:

• the term is unfair; and
• the contract is a standard form contract.

We are exploring each of these key expressions as we prepare for the 12 November reform commencement date. So far, we have looked at the definition of small business contract. A contract is a small business contract if it meets both a headcount requirement and an upfront price requirement. We have already considered the headcount requirement and the upfront price requirement.

Let’s see if we can identify some contracts that you might regularly use, which might be standard form contracts. Then we’ll take a closer look at how a court would decide if they actually are standard form contracts.

Standard form contracts that are often used by recruitment, on-hire and contacting agencies could be:

• terms of business under which you supply services to clients;
• terms of business under which you acquire goods, services or property interests (e.g. a commercial lease) from third parties;
• terms of business with your independent contractors – because they’re contracts for services;
• candidate or work seeker registration agreements – because you are supplying agency or representation services – even though the candidates or work seekers might not actually be engaged or might be between assignments.

So, how would a court decide if any of these were actually standard form contracts?

The definition of “standard form contract” is surprisingly simple and you might think it unfair. But it is what it is.

Basically, a standard form contract is any contract that another party to a proceeding says is a standard form contract.

That party might be a party to your contract (e.g. a client, a candidate, a contractor, another agency); or it might be a regulator such as the ACCC.

It is then up to the party, who relies on the contract (you perhaps) to prove that it isn’t.

When you are trying to prove that your contract is not a standard form contract, there are several matters that a court will take into account. They provide a good checklist for your current contracting practices. So, have a look at them and think about whether you would be able to prove to a court that your contracts or terms of business are not standard form contracts.

These are the matters a court will consider:

• whether one of the parties has all or most of the bargaining power relating to the transaction;
• whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
• whether another party was, in effect, required either to accept or reject the terms of the contract (other than excluded terms[1]) in the form in which they were presented (“take it or leave it”);
• whether another party was given an effective opportunity to negotiate the terms of the contract (other than excluded terms);
• whether the terms of the contract (other than excluded terms) take into account the specific characteristics of another party or the particular transaction.

In addition, the court can take into account any matter prescribed by regulation and any other matter that it thinks is relevant.

You can see from this list that there is a strong emphasis on the negotiability of terms and the distribution of bargaining power. Given the manner in which registration agreements, contractor agreements and many agencies’ client terms of business are presented, it may be fairly difficult for some agencies to prove that their terms of business do not amount to standard form contracts. Just to illustrate, have a look at the following example taken from an email footer:

By accepting this email, any attachments, and the information contained within them, you agree to comply with our Terms of Business.

Do you think that an agency that presented its terms of business in that way would have much chance of convincing a court that any contract that was formed merely “by accepting the email” was not a standard form contract? Probably not!

After that it is simply a matter deciding which terms are unfair and treating them as void.

We will have a look at how a court will determine if particular terms are unfair and at what terms may come in for special scrutiny in a later post.

For the moment, it is important for you to note that the reforms will commence on 12 November 2016 and that there is still time to review your terms of business and contracting practices … if you start now!

 

 

 

Andrew C. Wood, Hon FRCSA (Life); MIACP

 

[1] Excluded terms are terms about the upfront price, the subject matter of the contract and any terms required by law.