As of 10th November 2023, Australia’s unfair contract terms (UCT) regime is set to expand its coverage, including a significant number of contracts that were previously unaffected by the regulations. This expansion means that businesses that were once exempt from the UCT regime must now pay careful attention to their contractual practices. Non-compliance with the updated regime carries substantially increased penalties compared to previous regulations, making it essential for businesses to take prompt action.

With just three months remaining until these changes take effect, it is crucial for medical practices to carefully assess the standard documents they use for their contracts. It is crucial to evaluate whether their existing contracts fall within the revised UCT regime and take necessary steps to ensure compliance.

Background

UCT laws exist to promote fairness and protect consumers and small businesses from potentially exploitative or unfair terms in contracts. Late last year, The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) received Royal Assent, introducing a series of changes to the UCT regime, Competition and Consumer Act 2010 (Cth) (CCA) and the Australian Securities and Investments Commission Act 2001 (Cth).

These amendments, set to commence on 9 November 2023, will apply to standard form consumer contracts and small business contracts, such as employment contracts and lease agreements, imposing significant financial penalties to any person or business that ‘proposes, applies, relies or purports to apply or rely on’ an unfair contract term. UCT law exists to explain how the law protects consumers from unfair terms in contracts for financial products and services. The introduction of tougher UCT laws encourages compliance with the legislation and discourages the use of unfair terms in contracts. In turn, these amendments aim to create a more transparent and equitable business environment in Australia.

What is an unfair term?

The UCT laws provide that a consumer contract or small business contract is ‘unfair’ if:

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

In addition, section 25 of the CCA provides a non-exhaustive list of examples of the kind of terms that may be considered unfair, for example;

A term that permits one party but not the other to avoid or limit performance;
A term permitting one party but not the other to terminate;
A term permitting one party but not the other to vary terms;
A term permitting one party unilaterally to determine whether the contract has been breached or to interpret its meaning; and
A term limiting one party’s right to sue another party.

However, it is important to note that the determination of whether a term will be considered ‘unfair’ will be made on a case-by-case basis, taking into account the particular circumstances of the parties involved.

What are the changes to the UCT laws?

The amending legislation aims to provide greater protection to consumers and small businesses against unfair contract terms. Some of the notable changes include:

1. Expanded Application

Perhaps the largest amendment to the Act is the broader definition of a small business.

Prior to the law being changed, a small business was defined as a business with

Fewer than 20 employees and
The upfront cost under the contract is less than $300,000 or
The contract duration is more than 12 months, and the upfront costs under the contract do not exceed $1,000,000.

With the changes, according to the ASIC Act, as it pertains to loan contracts, the relevant protections will be applicable for a small business contract when the upfront price does not exceed AU$ 5,000,000. This will be the case if one party to the agreement employs less than 100 people or has a turnover in the previous financial year that was less than AU$ 10,000,000.

In the case of other contracts for goods and services, the UCT protections under the Australian Consumer Law (ACL) will apply. They are applicable if one party of the contract is a business with fewer than 100 employees or that has reported a turnover of less than AU$ 10,000,000 in the previous income year.

In both these scenarios, part-time workers are considered proportionately as a fraction of a full-time equivalent employee. Inevitably there will be some medical practices that will fall under the UCT regime.

2. Increased Penalties

Non-compliance with the UCT regime will now carry substantially higher penalties compared to previous regulations, which did not regulate or penalise the practice of entering into a contract with unfair contract terms. These penalties are particularly significant for businesses, including medical practices that operate as companies or unit trusts. Under the reformed UCT laws, corporations can face a potential maximum penalty of $50 million, while individuals may face penalties of up to $2.5 million for each unfair term. As most medical practices operate under these structures, it is important for practices to ensure compliance with the revised UCT laws to avoid risking these substantial financial consequences.

3. More powers given to the Courts

In addition to the authority to impose financial penalties, the reforms grant the courts with expanded powers to provide remedies to address unfair contract terms. Previously, when a court determined a term to be unfair, it would automatically be deemed void.

However, under the updated legislation, the courts now possess broader discretion to make orders concerning the entire contract, including the ability to void, vary or refuse to enforce the contract if such action is necessary to prevent anticipated loss or damage. This expanded authority of the courts is particularly relevant to medical practices, as the healthcare industry often engages in various contractual arrangements, such as agreements with suppliers, service providers, contractors and leasing contracts. With the updated legislation, the courts now have broader discretion in taking actions to address unfair contract terms. Therefore, practices should strive to ensure their contracts comply with the revised UCT laws, and by doing so, they can mitigate any potential risks and safeguard their interests, ensuring their contractual agreements align with fair and equitable terms.

How do these changes affect your Medical Practice?

The healthcare sector is likely to be particularly impacted, as the changes to the definition of a ‘small business’ will greatly increase the likelihood of practices that are subject to the legislation. In an industry which involves a range of contracts and sub-contracting agreements, it is expected medical practices will be impacted by these changes. Medical practice owners and practice managers should be aware of how the expanded definition of a small business and increased penalties will affect their contracts and corporate governance and review their contracts accordingly.

Next Steps

Given the upcoming changes that will be implemented on 10 November 2023, it is crucial for medical practices and all businesses using standard-form contracts to take proactive steps to ensure compliance. Recommended actions to consider include;

1. Assess your business classification

Determine whether your practice falls under the new definition of a small business. If your practice meets the new criteria, you will be subject to the UCT regime.

2. Review standard-form contracts

Evaluate all standard-form contracts used by your practice, such as employment contracts and lease agreements. Consider whether these contracts meet the requirements of fairness and do not contain any UCTs.

3. Seek Legal Advice

Leverage an expert where required to ensure your contracts align with the revised UCT laws. They can provide guidance and assistance in making any necessary amendments or revisions.

4. Ensure compliance before the deadline

Take prompt action to amend any identified unfair contract terms or make necessary revisions to your contracts before the changes come into effect, where you may be subject to increased penalties.

By taking these proactive measures, medical practices can ensure compliance with the expanded UCT regime and minimise the risk of facing penalties. Acting promptly and seeking legal guidance where needed will safeguard your practice’s interest and ensure ongoing compliance.

Leverage An Expert

We suggest seeking professional advice on these issues. If you have any questions about unfair contract terms or anything else, feel free to contact our team here, and we will put you in touch with the best professional for your needs.

New Unfair Contract Terms Laws – Is Your Medical Practice at Risk?