Checking for Unfair Terms in Standard Form Small Business Contracts.

With less than eight weeks to go before the unfair terms in standard form small business contracts changes to the Australian Consumer Law take effect, the Recruiters Casebook outlines steps that recruitment, contracting and on-hire agencies might take to avoid being caught out after the commencement date on 12 November 2016.

new-piktochart_557_5a6272aa92fd97d2f30686ff01ad176983fd4a8e

Like many review projects, this one starts by making a list.

1.      List all standard form contracts that you are using, or that you are likely to enter into or renew after 12 November 2016.

TIP: Exclude contracts that are exempt under section 28; but remember to include:

  • standard form contracts that your suppliers use, when they are supplying goods or services to you;
  • lease and franchise agreements;
  • on-hire contracts and contract management agreements (e.g. payroll agreements) involving contractors, who are not your employees because these are properly regarded as contracts for services and will come under the new laws.

TIP: Think about other standard forms that you use, which might contain contractual provisions (i.e. terms that you might hope to be able to enforce). Examples might be:

  • candidate or applicant registration forms (they might have exclusivity or consent provisions in them);
  • email footers (they might link to your terms of business; some might even operate as direct terms);
  • terms and conditions on the back of time sheets.

2.      Identify which standard form contracts involve a party that is a small business.

TIP: Pay particular attention to multi-party contracts – e.g. contracts that you may have with your “ABN Contractors”, where a small company and an individual worker may both be parties. Other examples might be multi-party contractor management or managed supply arrangements.

NOTE: You might need to check whether agreements made with multiple parties are in fact separate contracts contained in one document. Look for clues such as whether obligations are joint or several.

3.      Check to see whether the upfront price for your standard form contracts falls under the threshold.

  • TIP: Be careful to distinguish between Standing Offer Agreements and Master Contract Agreements as they may be affected by the unfair terms reforms in different ways.

4.      Review your list to check for the presence of any of the following types of suspect unfair terms:

  • a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract

Examples: “deregistration” provisions in candidate registration agreements; and “all-care-no-responsibility” clauses that may be contrary to statutory guarantees;

  • a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract.

TIP: Look especially for termination for convenience, which is common in many contracts;

  • a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract

Example: Liquidated damages provisions;

  • a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract;

TIP: Look especially for cases where this can occur without price renegotiation, which is common on many SOAs;

  • a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract

TIP: Look especially for cases where this can occur without price renegotiation, which is common on many SOAs;

  • a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract

TIP: Look carefully at provisions that allow you increase on-hire rates to accommodate changes in underlying labour cost and check that the notice provisions allow for termination on notice, without penalty, before the rate changes take effect;

  • a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract

TIP: May occur in some SOAs and Contractor agreements; may also allow a third party to change requirements. Look especially for cases where this can happen without price renegotiation;

  • a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning

Examples: “Satisfaction” or “Sole discretion” clauses;

  • a term that limits, or has the effect of limiting, one party’s vicarious liability for its agents

Example: “Hold harmless” clauses;

  • a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party’s consent

TIP: Likely to be more common in on-hire contractors’ agreements;

  • a term that limits, or has the effect of limiting, one party’s right to sue another party

Example: “Hold harmless” and indemnity clauses;

  • a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract

Examples: “Certificate” or “Conclusive evidence” clauses – often used in conjunction with “satisfaction” clauses; various “artificial acknowledgment” of “fiction” clauses;

  • a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract

Example: “Deemed introduction” clause;

NOTE: You do not have to include a term that only:

– defines the main subject matter of the contract[1]; or

– sets the upfront price payable under the contract; or

– is a term required, or expressly permitted, by a law of the Commonwealth, a State or a Territory;

  • any other term that might be unfair.

5.      If you find any suspect unfair terms, check:

  • the extent to which the term is transparent;

NOTE: A term is transparent if the term if it is:

– expressed in reasonably plain language; and

– legible; and

– presented clearly; and

– readily available to any party affected by the term.

Small print terms in email footers or candidate registration forms are unlikely to be transparent according to these criteria.

  • the effect of the term on the contract as a whole.

TIP: Try to put yourself in the disadvantaged party’s shoes (indeed, you might be the disadvantaged party).

6.      For any suspect terms ask yourself:

  • would the term cause a significant imbalance in the parties’ rights and obligations arising under the contract?
  • is the term unnecessary in order to reasonably protect the legitimate interests of the party, who would be advantaged by the term?

TIP: If you are advantaged by the term, could you make a convincing case for the need for the term?

  • would the term cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on?

7.      If the answer to each of the questions in step #6 was “Yes”, you quite possibly have a term that would be declared to be void.

TIP: Think about how you should deal with it, keeping in mind any professional or ethical responsibilities you may have under a code of conduct that binds you.

Examples: An industry association code of conduct or a statutory code of conduct sic as the Agents Code of Conduct in the A.C.T. and the PEA code of conduct in Queensland.

8.      If in doubt, have your standard form contracts checked by your lawyer.

If the answer to any of the questions in step #7 was “Yes” or “Not sure” it would be prudent to have your standard form contracts checked by your lawyers.

Not every term that looks like it may be unfair would necessarily be declared to be unfair by a court. In cases of doubt, check with your lawyers.

Your industry association (if you belong to one) might also be able to provide some guidance.

TIP: Many industry associations will have promoted the use of templates in the past. Before you use one (or continue to use one), make sure that it has been reviewed in light of the changes to the Australian Consumer Law.

Andrew C. Wood

 

[1] Be careful here because it may be difficult to identify the “main” subject matter of the contract under bilateral and multi-lateral agreements, where services flow in more than one direction. You may encounter this issue in Contractor Agreements and Contract Management Agreements.

3 thoughts on “Checking for Unfair Terms in Standard Form Small Business Contracts.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s