Competition expert says Government should reverse exclusion of small business from unfair contract laws

Competition expert Frank Zumbo, who is an associate professor at the University of New South Wales, says Federal Small Business and Consumer Affairs Minister Craig Emerson should reverse the decision to exclude small business from the Government’s new unfair contract laws.

The Government’s unfair contracts legislation, first launched by then-Consumer Affairs Chris Bower, is designed to protect consumers from “unfair contract terms” in standard-form contracts. This includes terms such as unfair exit fees, penalty fees and clauses that permit one party to unilaterally change or cancel a contract.

But in late June, new Consumer Affairs Minister Craig Emerson announced B2B transactions would be excluded from the new legislation, pending the Government’s reviews of the unconscionable conduct provisions of the Trade Practices Act and also the Franchising Code of Conduct.

Zumbo, who will give evidence to a Senate Inquiry into the new laws today, says Emerson’s decision to exclude small businesses from the laws will be detrimental for the sector.

“Minister Emerson’s back flip is detrimental to small businesses as they are often on the receiving end of unfair contract terms in retail leases, franchises and supply agreements,” Zumbo says.

“Small business will be denied the ability to challenge one-sided contract terms that are increasingly being used by big businesses against small businesses.”

“There are more than enough safeguards in the unfair contract proposals to maintain business certainty, while still giving small businesses a new and effective avenue to be able to challenge unfair contract terms.”

Small business organisations including the Council of Small Businesses of Australia and the Australian Newsagents Federation have also protested against the exclusion of small business.

But a number of other experts from the franchise and retail sectors applauded the decision, after warning that to include B2B transactions under the legislation would have forced them to rewrite many standard contracts commonly used in these industries.

The Australian Bankers Association and the Australian Institute of Company Directors will also give evidence before the Senate inquiry to argue that the new laws will increase uncertainty for business.

However, Emerson appears unlikely to make changes to the new Bill, telling the Australian Financial Review that the business groups were “dreaming” if they thought they could force changes to the business-to-consumer provisions of the new laws.

He also said he had removed the business-to-business provision to reduce uncertainty.

“Commercial uncertainty is not in the interests of small businesses even though many of them and their association might argue for a business-to-business regime,” Emerson told the paper.