The Unfair Contracts Legislation: Threat, Challenge, or Opportunity?

Now that we have passed 12 November 2016, when the unfair terms in standard form small business contracts reforms commenced, recruitment, on-hire and contracting agencies might consider how they can adjust to the changes; and might ask themselves whether the changes present a threat, a challenge, or an opportunity. They might be all those things. And, for a few, they might also be an invitation to do something amazing.

Some will ignore them, believing that they’ve seen it all before and that “Nothing is ever a problem until it becomes a problem. Right?”

Others will complain about over-regulation and government interference in their freedom to do business as “robustly” as they choose. Some may forget that their robust choice has been to do business on unfair terms, without transparency, and exploiting their stronger bargaining power to take advantage of their weaker business “partners”. But then, “That’s business. Right?”

Others still, will see it as yet another burdensome compliance challenge and face up to it grudgingly, whilst maintaining that, “Nobody’s going to make anything out of it except the lawyers. Right?”

But what if the reforms have presented you with an opportunity to do something amazing? Would you take it?

An opportunity?

I’ve argued in a few different forums now, that the first agency to innovate a genuine model of collaborative contracting – either with its clients or with its contractors/candidates – is going to place itself streets ahead of its competition.

Some agencies might take the view that now would be a good time to put their contracting practices on a different footing – one that harnesses the positive social forces that are already disrupting traditional business practices to re-frame contemporary business, not as contest, but as co-production of reciprocally beneficial outcomes; that sees parties, not as combatants or competitors, but as collaborators and contributors (a term favoured by work futurist, Jeremy Scrivens). Because what we put into our contracts says a lot about the type of relationship that we will get out of them.

For those of you, who are wanting to do something positive, there are a couple of approaches that may be worth considering. I won’t say that either of them is perfect. They both have limitations. But they also have significant benefits over simply ignoring the changes, or merely complaining about them.

As I see it, the reforms present a challenge to the way the sector does business – with its clients, with its suppliers (including contract management companies and tiered suppliers), and with its contractors/candidates. It’s a challenge that will be encountered on a very large scale.

Potentially millions of contracts may be affected

The ACCC has stated that:

“small businesses enter into an average of 8 standard contracts a year. With more than 2 million small businesses in Australia, the ACCC anticipates this change will potentially affect millions of standard form contracts”.

Robert Gottliebsen, business columnist for The Australian, goes so far as to describe the unfair contract legislation as “a big deal”. He writes:

“…there is now no doubt that the unfair contract legislation will herald the single biggest change in the way Australian enterprises do business for decades.”[1]

Now that’s what you might call a challenge! There are two ways in which businesses might choose to respond to it with purpose and intent.

Compliance challenge

The first way is the orthodox way of compliance. Some businesses will take a deep breath and say, “OK. Something might be wrong with our terms of business. We’d better review them and weed out anything that’s likely to be unfair so we don’t get caught”.

That is certainly something you ought to do. But, commendable as that approach may be, there are three things against it.

  • It’s not a matter of simply identifying terms that are unfair in general.

The question in each of the millions of cases is whether the term is unfair in the context of the particular contract with the particular party against whom it might be enforced. And that is going to depend on many factors. What is fair as regards one party in a particular situation may be unfair as regards a different party in a different situation. What was fair as regards one party on one occasion may be unfair as regards the same party in a later situation.

  • The precautionary extirpation of any term that might be unfair could result in an agency’s giving away a substantial and genuine business advantage – or weakening an agency’s position.

For example, in an unconscionable conduct challenge, a court might look at the extent to which an agency’s conduct towards a business consumer or small business supplier (e.g. contractor) is consistent with its conduct in similar transactions.

  • I might be accused of being overly cynical here – but would there be much left that would be worth saying, after the services have been described and the price has been stated?

Much of what goes into standard form contracts is designed to give one party a competitive edge or advantage. It is an advantage that is sometimes based upon artificiality stated in the form of various fictional acknowledgments, or erosions of legal and statutory rights. Drafted combatively, they are often biased documents. There can be an element of unfairness in all this. Whilst they might throw up an cynically arguable case, how many of those arguments go the distance? What do they cost? And what damage do they do to the relationships that they are supposed to support? It obviously makes sense to remove such terms; but what you would be left with, in some cases, might be so dull that it loses any competitive edge.

Addressing the mischief

The second way is to deal with the specific mischief that the reforms address.

That mischief is not simply the existence of unfair terms; it is the presence of unfair terms more specifically in standard form contracts – contracts that are presented on a take it or leave it basis; that exploit one party’s bargaining power and another’s weakness; that are not open to negotiation; and that do not take into account the specific features of the other party, and so on.

So, one way of responding to the challenge of these reforms would be to rehabilitate your contracting practice – to say, “Right. From now on, we’re going to be more open in our contract negotiations. We’re going to aim for a more collaborative approach in which we deal fairly and transparently with a view to chartering the relationship we truly want.”

That would work because, regardless of how advantageous a term might be solely to one party, if it’s not in a standard form contract, these reforms won’t touch it[2].

There are some disadvantages of this approach and they should not be discounted:

  • It is likely to be slower and it may be more costly to implement.

But it may be a matter of whether you are focused on the number of contracting relationships you have, or on their quality. You will know what works best for you.

  • It may take time and effort to train your staff to be able to negotiate small business contracts confidently.

It is much easier to fall back on a standard form – but what would be the point if it doesn’t contain the terms you want; and if, by negotiating it more openly, you might be able to keep those terms?

  • This approach may involve a significant change in the culture of doing business for many agencies.

For example, to view a contractor as your co-contributor to a productive enterprise, rather than merely as a person to be supplied and kept to the task; and to negotiate with your contractors on that basis, might involve not only a change in business habits, but also an essential re-appraisal of business relationships. It’s perhaps no wonder that Gottliebsen thinks that the unfair contract legislation “will herald the single biggest change in the way Australian enterprises do business for decades.”

Not mutually exclusive – getting the right balance

The two approaches that we have just considered are not mutually exclusive; and for many it will be a matter of getting the balance right. Additionally, the balance will not necessarily be the same for all cohorts in all transactions.

The balance that you might strike for dealings with your best clients need not be the same as the balance you would strike for dealings with other clients, or with your contractors or suppliers.

What I think we may find, is that the reforms will provide an incentive, or springboard, for more innovative agencies to re-appraise their contracting approaches as well as the terms that their approaches have produced.

What I also suspect is that many agencies are already balancing these two approaches. It’s just that they might not yet have made a strategic commitment to achieving that balance and they might not have taken the steps necessary to build that balance into the culture their organisation.

Whatever happens after 12 November 2016, there will be fresh challenges and opportunities aplenty… and I hope you will see them as an invitation to do something amazing!

Scales

 

 

Andrew C. Wood

 

[1] “The Unfair Contract Legislation is a Big Deal” The Australian, 12:56pm August 10, 2016.

[2] Be careful, however, because other provisions of the ACL such as the unconscionable conduct provisions or provisions that prohibit the false or misleading conduct in relation to an offer of employment may still apply.

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