Unfair contract negotiations

Sarah Gee

One week into the new unfair contracts law and I just had one of the easiest experiences negotiating a contract for a small business that I can remember. Why might this be? This new law is changing the rules of the game. Bargaining power has shifted significantly in favour of “small business” and no one wants to be the ACCC’s example case of what not to do. Read more about my experience with unfair contract negotiations in this blog post.

Not the usual song and dance

The usual song and dance of contract negotiations between big companies and small business goes a little bit like this:

Big company: here’s our standard terms, please sign and send back

Small business: hey, you have about 25 terms in there that are really unfair. Can you change them so that I can have some rights too? This doesn’t even say you have to pay me

Big company: Nope

Small business: How about if I pick the top 3 things that could break my business and you just agree to those

Big company: How about you just have half of one of those things

Small business: Well I need the work so I guess I’ll just sign

One of the super handy parts of the new law is that it considers how the other party behaved during contract negotiations.

This means that when I sent my usual list of 25 things off to the big company this week, they came back and had changed their contract to address all of our concerns. I almost fell off my chair. A contract between an ASX listed company and a business with 6 staff that actually guarantees payment?! This is a true game changer.

Dancing the contract tango

So what has got them changing their behaviour? There are new laws in place which police contracts that small businesses sign. And the definition of small business now applies to anyone with less than 100 staff or less than $10 million in turnover.

There are three separate contraventions of the law which are possible. You can get in trouble for:

  • making a contract with an unfair contract term
  • applying an unfair contract term
  • relying on an unfair contract term

So even if you had a contract which was signed before the new law started, you can’t apply or rely on it anymore.

Wisdom of wallflowers: When No Dance Is the Best Dance

One of the things that makes unfair contract negotiations interesting (at least to us!) is the definition of standard form contracts. The courts are looking really closely at discussions and negotiations that happen in the lead up to signing the contract. This is why we had the easiest unfair contract negotiations of all time this week. If you ask for the contract to become more reasonable and the other party says no, that is probably going to make a great basis for a complaint later.

Many lawyers are already discussing that it could fast become a tactic to not negotiate at all and keep the fact that the other party made a contract with an unfair contract term up their sleeve if things go off track in the relationship later (this should never be attempted without advice from a lawyer).

Strike the right contract chord or pay the piper

Unfair contract negotiations is not an area to play with. Not only are there fines for up to $50 million for companies and $2.5 million for individuals. There are also options for the courts to issue public warning notices, adverse publicity orders and disqualification orders. We saw what this looked like in the case of Fujifilm where they were forced to write to 34,000 of their customers and publish the decision on their website. An actual PR nightmare. (Read more about this in our earlier blog post here)

Another trick to be aware of here is that if you are a small business offering an unfair contract term, including to a big company, you are still caught by the law. This means everyone should be checking in with a lawyer about the contract terms they are offering as soon as possible.

If you’d like to know how we can help you navigate the complexity, book a free 15 minute Curiosity Call using the Book an Appointment button above or via this link. We know you don’t have time to get across this and that’s exactly what we’re here for.