Unfair Contract Terms: Compliance Guide for Australian Businesses

Running your own business in Australia is an exciting journey - the freedom to create, innovate, and serve customers on your terms. But as many small business owners quickly discover, staying on top of your legal obligations isn’t always straightforward. One area that’s increasingly in the spotlight is unfair contract terms. If you’re dealing with customers, suppliers, or other businesses, it’s more important than ever to understand how unfair contract terms Australia law applies - and what you need to do to stay compliant.

With recent updates to the legislation, even more businesses (including small businesses) are now covered by protections against unfair terms. Unfair contracts legislation has real consequences for your agreements, whether you’re drafting standard T&Cs, dealing with larger suppliers, or signing contracts presented by others.

So what counts as an "unfair" term? How do the latest changes affect your day-to-day business? What practical steps can you take to protect yourself? In this detailed guide, we break it all down for you - and show how Sprintlaw can help you get your contracts right, so you can focus on growing your business with confidence.

What Is An Unfair Contract Term?

Let’s start with the basics. An unfair contract term is a term in a standard form consumer or small business contract that significantly disadvantages one party (usually the consumer or small business), isn’t reasonably necessary to protect the legitimate interests of the other party, and would cause detriment if enforced.

In plain language: if a clause gives you (or the other party) an unreasonable amount of power, or lets one side act in a way that isn’t fair or balanced, it could be classed as unfair.

Typical examples of unfair terms include:

• Allowing one party (but not the other) to unilaterally vary, renew or end a contract
• Penalising one side (e.g. with excessive cancellation fees) but not the other
• Permitting one party to avoid or limit their obligations unfairly
• Preventing one side from suing or claiming compensation, when that right should be available

If a contract term is found to be unfair, it's considered void - meaning it can’t be enforced. The rest of the contract may still apply, but that specific term will have no effect.

How Does Unfair Contract Terms Legislation Australia Work?

Unfair contracts are regulated under the Australian Consumer Law (ACL), which is part of the Competition and Consumer Act 2010 (Cth). The ACL gives consumers (and, now, many small businesses) strong protections against unfair contract terms.

For years, these rules only applied to contracts with individual consumers. But in response to ongoing concerns about small businesses being on the receiving end of “take-it-or-leave-it” contracts, the law was extended to cover standard form small business contracts as well.

In November 2023, the law was further strengthened - the unfair contract terms legislation 2022 changes brought in new rules and penalties.

Which Contracts Are Covered?

The ACL’s unfair contract terms regime applies to:

• Standard form contracts - contracts prepared by one party, usually for repeated use, where the other party has little or no opportunity to negotiate (e.g. your typical T&Cs document, franchise agreement, online platform terms, and more)
• Consumer contracts - for goods or services intended for personal, domestic or household use
• Small business contracts - where at least one party is a small business (employs fewer than 100 people or has an annual turnover under $10 million)

The rules apply whether you’re receiving the contract, drafting it for your customers, or updating existing agreements. If you’re not sure if your business is a “small business” or if your contracts are “standard form”, check out our definition of small business and our article on standard form contracts for deeper dives.

What Is A ‘Standard Form Contract’?

There’s no one-size-fits-all definition, but generally, a contract is “standard form” if:

• It is offered on a largely “take it or leave it” basis
• Most (or all) of the terms are set in advance, not negotiated individually
• The party receiving it has little or no ability to make changes

If you’re using the same template agreement for all customers, suppliers, franchisees, or partners, chances are it’s considered standard form under the law.

How Have Unfair Contract Terms Laws Changed? (2022 & 2023 Updates)

Recent reforms significantly expanded and toughened unfair contract terms Australia rules. These are some of the most important changes small business owners need to know:

• Wider Coverage: The law now applies to even more small business contracts (the employment threshold went from 20 to 100 employees, or up to $10m annual turnover).
• Penalties Introduced: Previously, only the unfair terms themselves were void - but there were no financial penalties for including them. From November 2023, heavy fines can be issued against businesses/individuals who include or rely on unfair terms.
• Broader Definition of ‘Standard Form Contracts’: Courts will look at how much real opportunity each party had to negotiate or vary terms, not just whether the contract is labelled “standard”.
• Can Apply to Existing Contracts: Many existing agreements are now caught by the new regime, including some contracts signed before the updates took effect.

In summary: If you deal with contracts in your business, especially if you use “template” documents, you need to review them now to make sure you’re compliant.

Why Do Unfair Contract Terms Matter For Small Businesses?

For many small business owners, unfair contract terms can feel like a “big business problem.” But the reality is, these laws protect you when you sign supplier contracts, lease agreements, or software terms - and also regulate the agreements you provide to your customers.

If you use “off-the-shelf” contract templates or T&Cs found online, they may include terms that are unfair under Australian law. Relying on them opens up your business to:

• Having key contract clauses invalidated (so you lose that protection)
• Potential penalties and action from the ACCC or customers
• Reputational damage if customers raise a concern or pursue action
• Disputes that become expensive to resolve

On the flip side, unfair contract terms legislation is there to ensure you’re not pressured into signing contracts that are heavily tilted against you. Knowing your rights empowers you to push back on unfair clauses, or to negotiate a better deal.

What Counts As An Unfair Term? Key Examples

It’s not always obvious if a term is “unfair” - but here are common examples the ACCC (Australian Competition and Consumer Commission) and courts focus on:

• Allowing one party, but not the other, to terminate the contract for any reason
• Imposing excessive penalties for ending the contract early
• Permitting one party to change pricing, products, or the scope of services without agreement from the other
• Unreasonably limiting the ability of one party to sue, claim damages, or respond to a dispute
• Automatic renewal terms that are hard to avoid or notice
• Broad indemnity or limitation of liability clauses that only benefit one side
• Clauses allowing the primary party to avoid their obligations for vague reasons (e.g. “at our discretion”)

Remember: a term is only “unfair” if it meets all three legal criteria -

1. It causes a significant imbalance in the parties’ rights and obligations
2. It is not reasonably necessary to protect the legitimate interests of the party who benefits from it
3. It would cause detriment (financial or otherwise) to the other party if relied on

If you’re unsure whether a term in your agreement falls into this category, it’s a smart idea to get legal input. Our contract review experts at Sprintlaw can help spot and address unfair contract risks.

How Can My Business Avoid Unfair Contract Terms?

With these tougher laws, the stakes are higher for business owners. Here’s how you can protect your business, your customers, and your reputation:

• Review Your Contracts Regularly: Go through your standard form agreements (customer T&Cs, supplier contracts, leases, franchise agreements, etc.) to check for potentially unfair terms.
• Get Contracts Professionally Drafted or Reviewed: Don’t rely on generic templates or DIY “legalese” - have your key contracts prepared or checked by experts to ensure they meet current Australian law. Sprintlaw offers contract review services tailored for small businesses.
• Be Wary Of Copying Others: Just because a competitor uses a contract doesn’t mean it’s compliant! Laws change, and what’s standard overseas may breach Australian rules. Our team explains some of the pitfalls in Copying Terms and Conditions Template.
• Balance Risk Fairly: Ensure your limitation of liability, indemnity, termination, and renewal terms are balanced and justifiable - not just about shifting all risk to the other side.
• Train Your Team: Anyone in your business who issues, accepts, or negotiates contracts should understand the basics of unfair contract terms and the consequences of non-compliance.
• Update Agreements When The Law Changes: The unfair contracts legislation changed significantly in late 2022, so contracts older than that may be out of date.

Sprintlaw's guide on the recent unfair contract term law changes is a handy resource to help you keep up-to-date.

What Legal Documents Should My Business Use?

To minimise the risk of unfair terms - and set your business up for compliance and good relationships - it pays to have the right documents in place. Typical documents include:

• Terms & Conditions (T&Cs): Sets out the basis for business-to-consumer or business-to-business transactions. Should be clear, reasonable, and balanced.
• Service Agreements: Outlines the details of your service offering, how either side can end the engagement, payment terms, and dispute resolution.
• Supplier Agreements: Covers arrangements with your suppliers - important for a fair, reliable supply chain.
• Franchise Agreements: Required if you’re franchising, these must comply with various laws, including the Franchising Code of Conduct. All terms should be balanced, transparent and not “take it or leave it.”
• Partnership or Shareholders Agreement: If you’re in business with others, these documents set ground rules and reduce the risk of disputes.

Not sure which agreements you need - or if yours are up to scratch? Our team can review your legal documents for compliance and help you draft contracts that are fair, commercial, and legally robust. Explore our Legal Documents For Business guide to see the essentials for different business types.

What Happens If My Contract Contains An Unfair Term?

If a term is challenged and found to be unfair:

• The term is void and unenforceable. It’s as if it never existed in the contract.
• You cannot rely on that term to limit your obligations or shift risk.
• You could be investigated or prosecuted by the ACCC and face significant penalties.
• Your business might suffer reputational damage - and the rest of the contract may come under scrutiny.

Ultimately, it’s about doing the right thing by your customers, clients, and commercial partners. When your contracts are clear, balanced, and fair, you’re building trust and reducing the risk of costly disputes.

Are There Any Exceptions To The Unfair Contract Terms Laws?

Certain terms are exempt and cannot be struck out for being “unfair”. For example, terms that:

• Define the main subject matter of the contract (the “essence” of the deal)
• Clearly set out the upfront price payable
• Are required or permitted by law (such as some provisions in insurance contracts)

But even these must be explained in plain language and not be hidden or misleading. If you’re unsure, our guide to unconscionable conduct and consumer contracts covers these tricky situations.

How Do I Make My Contracts Compliant With Australian Law?

Here’s a practical step-by-step process:

1. Identify your standard form contracts. Check all template agreements you issue regularly - don’t forget online T&Cs, franchise agreements, or customer onboarding packs.
2. Audit for unfair terms. Compare each contract’s key clauses against the criteria above. If you spot one-sided rights, vague discretion, harsh penalties or any of the common “unfair” types, flag them for review.
3. Consult a legal expert. Get your contracts checked or updated by a solicitor who understands the latest changes. They can advise on which clauses should stay, how to reword or remove problem terms, and what fair alternatives look like in your sector.
4. Update your processes. Educate your team about unfair contract terms and the need for fair, compliant agreements. Put in place review systems for new contracts going forward.
5. Monitor for future changes. The ACCC is actively pursuing unfair contract cases and the law evolves. Stay alert for updates - or join our legal update newsletter for regular alerts.

Key Takeaways

• Unfair contract terms Australia law is now stronger than ever - covering most small business standard contracts and bringing in heavy penalties for breaches.
• Common unfair terms include one-sided rights to terminate or vary, harsh penalties, and clauses that prevent fair dispute resolution.
• Contracts that aren’t compliant can be void, unenforceable, and can put your business at risk of regulatory penalties and reputational issues.
• Review all your standard templates and major contracts now; update wording to ensure terms are reasonable, balanced, and compliant with the latest unfair contracts legislation.
• Get professional legal help to draft, review, or update your customer T&Cs, franchise agreements or supplier contracts - the right documents protect your business and set you up for success.

If you would like a consultation on unfair contract terms - whether you're reviewing your own agreements or negotiating new contracts - you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.