Extension of ‘Unfair Contracts’ Protection for Small Businesses (and perhaps franchises)

July, 2014

Following the Commonwealth Treasury’s release of a Consultation Paper which considers expanding the current unfair contract provisions of the Competition and Consumer Act 2010 (Cth) (Act) so that they also apply to small businesses, the Franchise Council of Australia (FCA) is encouraging all franchisors and other interested parties to provide feedback on the Consultation Paper in an effort to prevent those provisions from applying to franchise agreements.

The aim of the unfair contract provisions is to create more of a balance in the bargaining power of parties by deeming certain provisions of contracts void if they are, amongst other things, not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term or if they would cause detriment, financial or otherwise, to a party if it were to be applied or relied on.

The FCA holds the view that franchisees are strongly encouraged to obtain independent legal advice prior to entering into a franchise agreement and therefore, there is no imbalance in the power between the parties.

The main motivator behind the Treasury’s consideration of extending the unfair contract provisions is that at present, small businesses are often forced to enter into contracts on a ‘take it or leave it’ basis.  Much of the time, small businesses lack the commercial experience, expertise or money to negotiate contract terms and to properly understand the legal and practical implications of contract terms.  They are left with little choice to accept a contract which contains commercial terms which are not favourable to small businesses.

If these provisions were to apply to franchise agreements, all franchisors would need to ensure that their franchise agreements comply with Part 2-3 of Schedule 2 of the Act, which would require franchisors to, in many cases, conduct a full review of their franchise agreements.  In the event amendments to a franchise agreement were required, a franchisor would incur substantial costs, but also franchisees would be required to expend more money to again obtain independent advice on the amended franchise agreements.

Submission can be made by taking a short survey, providing brief feedback via the treasury’s website or lodging a formal submission and close on 1 August 2014.n our earlier alert of 19 June we commented upon the Federal Circuit Court’s decision in The Director of The Fair Work Building Inspectorate v. Linkhill Pty. Limited (No. 7). In that case, Linkhill was ordered to pay almost $180,000 in employee entitlements and was found to have engaged in “sham contracting” with a number of construction employees which it claimed were independent contractors.

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Stephen Dickens |  Partner
Ph: (07) 3228 0445
Email: sdickens@millsoakley.com.au



Tim Cox  |  Partner
Ph: (07) 3228 0442
Email: tcox@millsoakley.com.au

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