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If you’re running or starting a business in Australia, chances are you’ve heard about “contract clauses” more times than you can count. Whether you’re reviewing supplier agreements, hiring staff, protecting your intellectual property, or partnering with others, understanding the ins and outs of a clause contract is absolutely crucial. But what exactly is a clause in a contract, and why does it matter so much for your business?
Getting contract terms right is more than just a legal tick-the-box exercise – it’s about protecting your business, managing risks, and building trust with your partners, customers, or employees. At Sprintlaw, we know contract law can seem daunting, especially when you’re focused on growing your company. That’s why we’ve put together this easy-to-follow guide so you can get to grips with contract clauses in Australia, understand their key purposes, and avoid common pitfalls.
In this article, we’ll break down what a contract clause really is, why legal clauses matter for your contracts, and which ones you’re most likely to encounter as a small business owner. We’ll also explain how to spot problematic clauses and share steps you can take to make sure your contracts work for you – not against you. If you want your business to be protected from day one, keep reading to see how you can set up strong and enforceable agreements.
What Is a Contract Clause?
A contract clause is simply a specific section or provision within a contract that deals with a particular topic or rule the parties have agreed on. Think of clauses as the building blocks that make up your overall agreement. Each clause has its own purpose – for example, deciding when payment is due, who owns intellectual property, what happens if something goes wrong, or how to end the agreement.
Clauses are used in every type of contract – from supplier and service agreements to employment contracts, shareholder agreements, commercial leases, and everything in between. They set expectations, define responsibilities, and help you avoid disputes by making arrangements as clear and transparent as possible.
Each contract can contain dozens of different clauses (or even more, depending on complexity), but not every contract uses the same ones or in the same form. That’s why understanding the core legal clauses commonly seen in Australian business contracts is so important.
Why Are Clauses in Contracts So Important?
Including the right clauses in a contract protects both your business and anyone you deal with. Here’s why:
- Clarity: Clear clauses mean both parties know exactly what each side promises to do. This prevents confusion and costly misunderstandings down the road.
- Risk Management: By spelling out what happens in certain situations (like late payments or breaches), you proactively manage risks to your business.
- Legal Enforceability: Well-drafted clauses make it easier to enforce your rights if things go wrong. Australian courts generally uphold what’s in a valid contract, provided it’s fair and lawful.
- Flexibility: Carefully designed clauses let you customise legal relationships to suit your unique business needs – not just rely on generic templates.
- Compliance: Many types of businesses have legal obligations (under Australian Consumer Law, employment law, privacy law and more) and contract clauses are a practical way to demonstrate compliance.
Without solid clauses, your contract could leave you exposed – or worse, it might be partly or wholly unenforceable. That’s why it’s always worth investing time (and sometimes legal advice) to get the contract’s foundation right.
Which Common Legal Clauses Should You Know?
Depending on your industry and what your business does, you’ll come across many different types of contract clause. Here’s a rundown of the key ones every Australian business should recognise.
- Payment Clause: Outlines how and when payments are to be made, including penalties for late payment or interest charges.
- Confidentiality Clause: Requires parties to keep certain information private and not disclose it to others. If you’re concerned about your business secrets, a Non-Disclosure Agreement (NDA) or strong confidentiality clause is essential.
- Termination Clause: Sets out how the contract can be ended, who can end it, and what the process should be. This avoids confusion and legal battles if the partnership needs to be dissolved.
- Liability & Indemnity Clauses: Limit your legal responsibility (liability) for losses or damages and put rules around who pays if something goes wrong. These need extra care to be enforceable and not run afoul of the Australian Consumer Law.
- Intellectual Property (IP) Clause: States who owns IP created during the contract, and whether it can be used or licensed after the agreement ends. For technology or creative businesses, see our guide to IP and contracts.
- Dispute Resolution Clause: Provides a pathway for sorting out disagreements, such as negotiation, mediation, or arbitration before resorting to courts. This saves time and money in the event of a dispute.
- Force Majeure Clause: Protects parties from being liable for events outside their control (like natural disasters or pandemics) that make it impossible to meet obligations.
- Boilerplate Clauses: “Standard” legal clauses that appear in almost every contract – such as governing law (which state/territory laws apply), assignment (whether rights can be transferred), entire agreement (making the written contract the full agreement), and more.
Every legal clause in your agreement should be there for a reason and written in plain English wherever possible. While you can find standard clause templates online, in practice it’s important to tailor them to your business scenario.
How Do I Make Sure the Clauses in My Contracts Are Enforceable?
Even the best-written contract clauses don’t help you if they can’t be relied on in practice. Here’s how you can boost the enforceability of your contract clauses in Australia:
- Be Clear And Specific: Vague or broad clauses often lead to disputes. Spell out the process, deadlines, rights, and remedies in detail.
- Follow the Australian Consumer Law (ACL): Certain unfair contract terms in standard form contracts are not enforceable, especially when dealing with consumers or small businesses.
- Avoid Illegal Clauses: Any contract clause that tries to override mandatory Australian law (for example, waiving statutory guarantees for consumers in the ACL, illegal restraint of trade, or discrimination) is not valid.
- Get It in Writing: While verbal agreements can sometimes be enforceable, always put important clauses in writing for maximum clarity and proof.
- Ensure Both Parties Sign the Contract: A contract isn’t normally binding until all parties have agreed and signed, whether that’s electronically or on paper. Learn more about the value of e-signatures for businesses.
If you’re not sure about whether a legal clause will hold up, or you need something more complex than a simple template, it’s wise to speak with a contract lawyer who can review and explain the risks.
What Clauses Do I Need in Different Types of Business Contracts?
The essential clauses for your business contracts will depend on the nature of the agreement. Here’s a snapshot of what you should look for in a few key documents for Australian businesses:
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Customer Contracts or Service Agreements:
- Payment and pricing details
- Scope of services or goods provided
- Refund and returns policy (in line with the Australian Consumer Law)
- Privacy Policy obligations, if you collect customer data
- Dispute resolution and termination clauses
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Employment Agreements:
- Role description and duties
- Remuneration (wage/salary, commissions)
- Leave entitlements and workplace policies
- Confidentiality and post-employment restraint clauses
- Intellectual property ownership clauses
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Supplier or Partner Agreements:
- Delivery terms and quality standards
- Payment schedules and penalties for default
- Limitation of liability and indemnities
- Termination triggers and notice periods
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Shareholders Agreements:
- Decision-making and voting rights
- Dividend distributions
- Exit arrangements (buyouts, sale of shares)
- Good leaver/bad leaver provisions
You’ll find detailed explanations of these documents and sample clauses throughout our site, including our guide to mastering contract law for Australian businesses.
How Can I Spot Problematic or Unfair Clauses in a Contract?
Contract clauses that seem one-sided, overly complex or not relevant to your deal can be red flags for trouble. Some things to look out for include:
- Unfair Termination Clauses: Watch for contracts that let only one party terminate for any reason – fair arrangements include balanced notice periods and grounds for termination.
- Excessive Penalties: If a clause imposes unreasonably large penalties for minor breaches, this could be seen as unfair (and possibly unenforceable).
- Hidden Auto-Renewal: Automatic renewal clauses are common but need to be clear and up-front about how and when the contract is extended.
- Full Indemnity or Unlimited Liability: Clauses that make you responsible for everything that could possibly go wrong, with no limitation, are risky and should be negotiated.
- Clauses That Contradict the Law: Avoid anything trying to “contract out” of mandatory laws or regulations, as it simply won’t be enforceable in Australia.
Not sure whether a particular clause contract is going to cause problems? Our legal experts can help review and explain your contracts before you sign, so you know exactly where you stand.
Can You Use Contract Templates or Should You Customise?
Contract templates can be a time- and cost-saving option when you’re starting out, but no template is perfect for every scenario. Here’s what you should consider:
- Templates Work for Simple, Standard Deals: If you’re using contracts for straightforward transactions that don’t change often (like basic NDAs, non-complex supplier orders), templates work as a starting point.
- Bespoke Or Complex Deals Need Custom Clauses: Any contract involving big sums, long-term relationships, intellectual property, or business partnerships should be tailored to fit your company’s unique risks and intentions.
- Laws Change Over Time: Old templates may not comply with recent updates to the unfair contract terms law or other key regulations, so always check your templates are up to date.
There’s nothing wrong with starting from a reliable template – just make sure every clause in contract is suitable for your needs, complies with the law, and fits the current market. When in doubt, have a contract lawyer review or draft the clauses with you.
Key Legal Documents Every Australian Business Needs
To get your contracts right from the ground up, here are some of the key legal documents where well-drafted clauses matter most:
- Service Agreement: Lays out the terms for services between you and your customers (based on your specific deliverables and expectations).
- Terms & Conditions: Sets the rules for using your website, app, or online shop. See our guide to online terms and conditions for more details.
- Privacy Policy: Explains how you collect, use, and store personal information to comply with Australia’s Privacy Act.
- Employment Contract: Covers employment rights, compensation, leave, IP and confidentiality for staff.
- Shareholders Agreement: Sets out rules and processes for multiple business owners or directors.
- Non-Disclosure Agreement (NDA): Keeps your business ideas and confidential information private.
- Supplier or Manufacturing Agreement: Covers payment terms, warranties, delivery, and liability in your supply chain.
Having these documents tailored to your business and up-to-date is one of the simplest ways to protect yourself legally.
Protecting Your Business: More Than Just the Basics
Great contract clauses not only help you avoid disputes, but they also help your business smoothly manage growth, change, and unexpected events. Are you planning to franchise, expand into e-commerce, or take on investors? Each of these moves means updating or adapting your contract clauses to match your new risks and goals.
Remember, even if you start with a basic contract or template, your legal clauses should be reviewed as your business evolves to stay compliant (learn more about ongoing compliance for Australian businesses). A contract that worked for a sole trader might not cover all your bases as a fast-growing company or when you enter new industries or jurisdictions.
Key Takeaways: Contract Clauses for Australian Businesses
- Contract clauses are the core rules in any agreement – they protect your interests, manage risk, and keep all parties on the same page.
- Every type of business contract needs its own tailored legal clauses, from payment to confidentiality, intellectual property, liability, and more.
- Unfair, vague, or illegal clauses can undermine your contract – and may even be unenforceable under Australian law.
- Use up-to-date templates for simple deals, but always customise clauses for complex or high-value arrangements.
- Key contracts like service agreements, employment contracts, and supplier agreements should be reviewed regularly as your business grows.
- Getting professional legal advice early – especially before signing or presenting major agreements – can prevent expensive mistakes and give you peace of mind.
If you’re looking for help drafting, reviewing, or understanding contract clauses for your business, we’re here to help. Contact us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat about your business contract needs.
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