Archive for the ‘Business Law’ Category

Extension of the unfair contracts regime to small businesses

The Federal Government has enacted legislation extending the unfair contract term protections of the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) to the small business sector.

Under the new laws, a Court is able to declare that a term of a standard form small business contract is void if the term is unfair.

The laws are an extension of existing provisions which have been available to consumers since 1 July 2010.

The intent of the legislation is to level the playing field and prevent “take it or leave it” standard form contracts, which are commonly one-sided, from including unfair terms. The amendments are based on the assumption that small businesses, like consumers, often lack the resources or skills to understand and negotiate contract terms and are vulnerable to the inclusion of unfair terms.

Agreements which could be caught by the provisions include retail leases, supply agreements, franchise agreements and finance contracts.

In this article, we look at what the new regime will mean for your business.

 

What transactions will be captured by the new regime?

The amendments extend the unfair contract term protection laws to contracts that are defined as a “small business contract”. A small business contract is one where:

  • the contract is for the supply of goods, services or a sale or grant of an interest in land;
  • at the time at which the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
  • the upfront price payable on the contract is no more than $300,000 (or $1 million if the duration of the contract is more than 12 months).

The protections only apply to standard form contracts. Although there is no express definition of a standard form contract, a standard form contract generally includes situations where:

  • one party has all or most of the bargaining power relating to the transaction;
  • one party prepared the contract before discussions between the parties;
  • one party was required to either accept or reject the contract as presented;
  • one party was not given the opportunity to negotiate; or
  • the terms of the contract are not specific to one party or the particular transaction.

A contract will be presumed to be a standard form contract unless a party proves otherwise.

The regime will not only apply to new small business contracts, but also pre-existing small business contracts which are renewed and to the terms of pre-existing contracts which are varied.

 

What is an unfair contract term?

A term of a contract is unfair if it:

  • would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
  • is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
  • would cause detriment (financial or otherwise) to a party if it were to be applied.

The legislation sets out some examples of unfair contract terms, including terms that:

  • allow one party to unilaterally vary, renew or terminate the contract;
  • penalise one party for a breach or termination of the contract;
  • allow one party to vary the upfront price under the contract without the right of the other party to terminate the contract; and
  • allow one party to unilaterally determine whether the contract has been breached.

 

Enforcement of the new provisions

If a party considers that a term of a small business contract is unfair, it can apply to the Federal Court seeking a declaration that the term is void and unenforceable. The remainder of the contract will bind the parties if it is capable of operating without the unfair term. Once a term is declared unfair, the party could also seek an injunction preventing the other party from relying on the unfair term.

There are no specific penalties or offences associated with a contract term being held to be “unfair”.

Applications to the Court can be made by a small business, the ACCC or by State regulators. The ACCC has been provided with $1.4 million in funding to assist in the implementation of and compliance with the new legislation.

 

What can your business do going forward?

The new laws will apply to contracts entered into or varied from 12 November 2016, which means that any business that uses a standard form contract when dealing with a small business will then have to comply with the new regime.

Companies which deal with small businesses should review their standard terms of trade to ensure that they do not include unfair terms. This might include:

  • examining whether the company utilises standard form contracts;
  • assessing the extent to which standard form contracts are entered into with businesses which employ less than 20 people and which fall within the upfront price thresholds;
  • identifying existing contracts which might be renewed after the commencement of the new regime; and
  • reviewing any standard form contracts to identify terms which might be deemed “unfair” and considering whether they should be amended.

 

Conclusion

The new legislation will affect a large number of industries which rely on standard form contracts. Businesses should review their standard form contracts immediately to minimise the risk of key contractual terms being found unenforceable.

If you or someone you know wants more information or needs help or advice, please contact us on 02 6372 3388 or email richard@richardwisesolicitor.com.au.

 

Employee or Contractor – do you know the difference?

Employee or Contractor – do you know the difference?

It’s important for all businesses to have systems in place to determine whether workers should be classified as employees or independent contractors, as tax, super and other government obligations are different depending on whether the working arrangement is employment or contracting.

Employees generally have PAYG withholding, super and fringe benefits tax paid by the employer. Contractors generally look after their own tax obligations.

 

If you get it wrong and fail to meet your obligations, you risk having to pay penalties and charges.

 

What factors do you need to consider?

 

There are a number of factors which need to be taken into account which help determine whether a worker could be classed as an employee or an independent contractor.

 

It is important to realise that no single factor can determine if a person is an independent contractor or an employee. To correctly determine whether a worker is an employee or contractor, you need to look at the whole working arrangement.

 

A worker isn’t automatically a contractor just because they have an ABN or specialist skills or you only need them during busy periods.

 

Courts will look at the whole relationship between the parties when determining the status of a person’s employment.

 

The Fair Work Ombudsman has produced a table of common indicators that may contribute to determining whether a person is an employee or independent contractor:

Indicator Employee Independent Contractor
Degree of control over how work is performed Performs work, under the direction and control of their employer, on an ongoing basis. Has a high level of control in how the work is done.
Hours of work Generally works standard or set hours (note: a casual employee’s hours may vary from week to week). Under agreement, decides what hours to work to complete the specific task.
Expectation of work Usually has an ongoing expectation of work (note: some employees may be engaged for a specific task or specific period). Usually engaged for a specific task.
Risk Bears no financial risk (this is the responsibility of their employer). Bears the risk for making a profit or loss on each task. Usually bears responsibility and liability for poor work or injury sustained while performing the task. As such, contractors generally have their own insurance policy.
Superannuation Entitled to have superannuation contributions paid into a nominated superannuation fund by their employer. Pays their own superannuation (note: in some circumstances independent contractors may be entitled to be paid superannuation contributions).
Tools and equipment Tools and equipment are generally provided by the employer, or a tool allowance is provided. Uses their own tools and equipment (note: alternative arrangements may be made within a contract for services).
Tax Has income tax deducted by their employer. Pays their own tax and GST to the Australian Taxation Office.
Method of payment Paid regularly (for example, weekly/fortnightly/monthly). Has obtained an ABN and submits an invoice for work completed or is paid at the end of the contract or project.
Leave Entitled to receive paid leave (for example, annual leave, personal/carers’ leave, long service leave) or receive a loading in lieu of leave entitlements in the case of casual employees. Does not receive paid leave.

 

A simple way to help tell the difference

 

The Australian Taxation Office on its website uses the following simple descriptions:

  • Employees work in your business and are part of your business.
  • Contractors run their own business and provide services to your business.

 


 

Why is the distinction important?

 

Employment relationships are regulated by specific labour protection laws and various awards and workplace agreements. These laws generally provide a higher degree of protection to employees than the general commercial laws that regulate contractor relationships.

 

This protection includes minimum conditions and standards of employment for employees including minimum entitlements for leave, public holidays, notice of termination and redundancy pay.

 

Adopt good business processes

 

Business owners need to keep records to support any decision on whether a worker is an employee or contractor and the factors relied on to make that decision.

 

Most of the information needed to support the decision can be found in a service contract for independent contractors or an employment contract for employees, which should accurately reflect the actual conditions of the working arrangement.

 

All contracts should:

  • be in writing
  • specify whether it is a contract for services or an employment contract;
  • set out the period of engagement and the remuneration;
  • include dispute resolution provisions;
  • specify if/how the relationship can be terminated.

 

Penalties

 

It is illegal for an employer to misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement or make a knowingly false statement to persuade or influence an employee to become an independent contractor.

 

Under the Fair Work Act inspectors can:

  • seek the imposition of penalties for contraventions of sham contracting arrangements.
  • apply to the courts to grant an injunction or an interim injunction if an employer seeks (or threatens) to dismiss an employee for the purpose of engaging them as an independent contractor. The purpose of the injunction would be to prevent the dismissal from occurring, or otherwise remedy the effects. Courts can also make other orders to have the employee reinstated or compensated.

 

If you need more information or if you need assistance or advice on how to proceed please call us on 02 6372 3388 or email richard@richardwisesolicitor.com.au.

Debt Recovery Basics for Business

  1. Send a Letter of Demand to the debtor setting out the amount of money outstanding and giving the debtor say seven (7) days within which to make payment or face legal action.
  2. The debtor has the right to dispute the debt.
  3. Proceedings for small debts (less than $10,000) are dealt with in the Local Court. Proceedings start with filing a document called a Statement of Liquidated Claim which sets out the amount claimed including Court costs, Solicitor costs and interest.
  4. The Claim is then served on the debtor. The debtor has twenty eight (28) days within which to file a Defence. If no Defence is filed, the creditor can enter Default Judgment, to recover all the money and costs.
  5. Thereafter, a Writ can issue from the Court, so that the Sheriff can seize the debtors goods and sell them to satisfy the Judgment.