Under the Bill, unfair terms in standard form small business contracts will be void. This means that the term will be unenforceable and treated as if it did not exist. If the contract can operate without the unfair term, it will continue to bind the parties.

An important distinction is that it is not an offence to include an unfair term in a small business contract and there are no pecuniary penalties for doing so, however if a person attempts to enforce a provision of a contract that is declared unfair then remedies can apply, including court-awarded compensation.

• The contract must be a small business contract, meaning that:

1. at the time the contract is made, one (or more) parties to the contract is a business that employs fewer than 20 persons (including full-time employees, part-time employees and casual employees who work on a casual or systematic basis, using a headcount approach, regardless of an employee’s hours or workload); and

2. the upfront price of the contract does not exceed a certain amount, which is $300,000 (for contracts lasting up to one year), or $1 million (for contracts lasting more than one year).

• The contracts is a standard form contract, meaning (generally) the contract is pre-prepared by one party and provided to the other party on a “take it or leave it”, “one size fits all” basis with no effective opportunity to negotiate its terms.

  
  

• The contract is entered, renewed or varied after commencement of the substantive provisions of the Bill, being 12 months after Royal Asset. The amendments in the Bill will apply to the contract as renewed or the terms as varied on and from the renewal day or the variation day (as applicable), in relation to conduct that occurs on or after that day.

  
  

• The contract is a contract for the supply of goods, services, land, financial products or financial services. In the case of the ACL, a small business contract must be a contract for a supply of goods or services, or a sale or grant of an interest in land. The unfair contract terms provisions in the ASIC Act apply to contracts that are financial products or contracts for the supply, possible supply, of financial services, although though this is not part of the definition of “small business contract”.

  
  

• The contract is not an excluded contract, meaning that it is not:

1. contract of marine salvage or towage

2. charterparty of a ship

3. contract for the carriage of goods by ship

4. constitution of a company, managed investment scheme or other kind of body

5. small business contract that is covered by Commonwealth, state or territory law that is prescribed by the regulations. (This allows exemptions where small business contracts are covered by an industry-specific law that is enforceable and equivalent)

• Review contracts which might be used in transactions involving businesses with less than 20 employees

• Review new contracts and existing contracts which it intends to renew or vary

• Consider creating a separate set of contracts for big businesses (and small businesses)

• Consider structuring the price to exceed the financial threshold

• Consider asking the other party how many people it employees

• If its own business employs fewer than 20 employees, use the new regime as a bargaining tool

• If you are in the transport industry, consider creating a separate set of contracts for shipping contracts (due to the exception for carriage of goods by ship from the unfair contracts regime).