Unfair contract terms
The Australian Consumer Law (ACL) protects consumers and small businesses from unfair terms in standard form contracts.
A standard form contract is a legal agreement made between 2 or more parties. It happens when a party makes an offer and the other party accepts it. These types of contracts are allowed if the terms in them are fair.
An unfair term:
- doesn’t fairly divide the parties’ rights and obligations
- is not necessary to protect your interests
- causes loss—if applied or relied upon—to either the consumer or small business.
The following video helps explain unfair contract terms.
Note: This video was produced prior to the introduction of unfair contract terms protections for small businesses in 2016.
Changes to the law
The law on unfair contract terms will change on 9 November 2023. These changes will:
- expand the protections covering small businesses with 100 or fewer employees, or businesses making less than $10 million in annual turnover
- apply to standard form contracts made or renewed on or after 9 November 2023, or a term of a standard form contract that is varied or added on or after 9 November
- introduce penalties for breaches of the unfair contract term provisions.
Visit the Australian Competition and Consumer Commission website to learn more about how these changes to unfair contract terms law apply to small businesses and standard form contracts.
Standard-form contract protections
Learn about the unfair contract term protections for small businesses and consumers.
Small business protections
Since 12 November 2016 small businesses have been included in the ACL unfair contract term protections. The law applies to contracts entered into–or renewed on or after–this date and:
- covers the supply of goods or services or the sale or grant of an interest in land
- applies if at least 1 party is a small business, meaning it employs less than 20 staff, including casual employees
- if the upfront price payable is no more than $300,000 for a 12-month contract or $1 million for contracts longer than 12 months.
If changes were made to a contract after 12 November 2016 the law only applies to the changed terms.
Contracts for small businesses are standard-form contracts if you:
- prepare them in advance for a small business to sign
- offer it on a ‘take it or leave it’ basis
- will not negotiate on contract terms.
Some common standard-form contracts for small businesses are:
- services provided, such as
- information technology
- advertising
- document handling
- security
- transport
- mobile phone contracts
- utilities.
Read the Unfair contract terms—New protection for small businesses fact sheet to learn more.
Contracts and terms that are not covered
There are various contracts excluded from the unfair contract term protections, such as:
- contracts entered into prior to 12 November 2016, unless renewed on or after this date
- shipping contracts
- constitutions of companies, managed investment schemes or other kinds of bodies.
Also excluded from these protections are terms that:
- define the main subject matter of the contract
- set the upfront price payable
- are required or expressly permitted by a law of the Australian Government, states or territories.
Consumer protections
Consumers are protected from unfair contract terms in standard-form contracts that:
- are prepared in advance for consumers to sign
- are offered on a ‘take it or leave it’ basis
- will not negotiate on contract terms.
Some common standard-form contracts are:
- mobile phone contracts
- gym memberships
- airline tickets
- concert tickets
- utilities.
Types of unfair terms
Unfair terms might give you—but not the consumer or small business—the right to amend the contract by:
- avoiding or limiting delivery of what was agreed to
- terminating with or without the knowledge of the consumer or small business
- avoiding penalties for breaking or terminating
- changing the terms
- renewing automatically
- changing the upfront price without giving the consumer or small business the option to cancel
- varying the characteristics of the goods or services to be supplied.
A term may unfairly protect your interests if it lets you:
- decide by yourself what is a breach of contract
- choose what the contract means
- take no responsibility for the actions of your agents or contractors
- pass your contract responsibilities to another party without their consent
- in legal proceedings
- limit the consumer’s or small business’ right to sue you and what evidence they can use
- impose the burden of proof on them.
Declaring a term unfair
Only a court can declare a contract term to be unfair, which must take into account whether the term is transparent and consider the whole contract.
When a term of a contract is found to be unfair, the term is void as if it never existed but the contract is still valid to the extent that it can operate without that term.
A term on its own may seem unfair, but it may be reasonable when it is looked at as a part of the whole contract.
More information
- Our guides help businesses understand key parts of the ACL. Download the ACL unfair contract terms guide or order a hard copy for more details about the rules for contract terms.
- The Small business self-assessment checklist will help ensure your business is following the law by providing information about ACL, your rights and responsibilities when dealing with customers, and where to get more information.