On 9 November 2023, significant reforms were made to Australia’s unfair contract terms (UCT) legislation. These changes, which include increased penalties and expanded application, have been designed to protect consumers and small businesses from being stuck in potentially exploitative, one-sided contracts. The changes mean medical and allied health practices must carefully review their contracts with consumers and businesses, and take proactive steps to ensure they are compliant, as nearly all medical and health practices will be caught by the new legislation.

The Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) have listed UCT enforcement as a “top priority” for 2024-2025. Violating these laws can mean costly fines of up to AU$2.5 million dollars for individuals and AU$50 million for corporations – meaning compliance must be a priority for medical and health businesses.

This article provides a reminder and updates on UCTs in Australia, key updates from the past year, and how practices can manage their compliance.

Who does the UCT regime apply to?

The UCT regime is governed by Australian Consumer Law (ACL), with mirror provisions contained in the Australian Securities and Investments Commission Act 2001 (ASIC Act). The changes apply to all ‘standard form’ consumer or small business contracts entered into or varied after 9 November 2023. Proposing, applying, or relying on an unfair contract term is considered a contravention. Strict penalties now apply, providing a “stronger incentive for businesses to comply with their obligations”.

What is an ‘unfair’ term?

A term of 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;
is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Section 25 of the ACL provides a non-exhaustive list of examples, and in determining whether a term is ‘unfair’, a court may also take into account the contract as a whole, including whether the terms were ‘transparent’. It is important to note this assessment will be made on a case-by-case basis, with regard to the specific circumstances of the parties involved.

What is a ‘standard form’ contract?

A ‘standard form contract’ typically refers to pre-drafted agreements offered on a ‘take it or leave it’ basis to multiple people, for example, Service and Licence Agreements with professionals, employment agreements or consent forms.

Changes to the UCT Regime

Expanded Application

The eligibility threshold for protection against unfair contracts has expanded to virtually all businesses in Australia following these reforms.

Changes to contract value threshold: Under the ACL, the regime applies to all consumer and small businesses standard form contracts, regardless of their value.

Expanded definition of small business contract: A ‘small business’ is now defined as a business with fewer than 100 employees (an increase the previous requirement of 20 employees);or a turnover of less than $10 million for the previous income year.

The Australian Bureau of Statistics estimates that 98% of Australian businesses fall under this classification as of 30 June 2024. Inevitably this expansion means many medical and allied health practices, including some previously exempt, will be subject to the new UCT regime.

Increased penalties

Non-compliance with the UCT regime carries 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 and allied health practices that operate as companies or trusts.

Under the ACL, breaches of UCT laws can result in significant maximum penalties, in addition to the relevant term being deemed void and enforceable. The maximum penalty is up to AU$50 million and AU$2.5 million for individuals.

It is important to note that each unfair term included in a standard form contract can attract a separate penalty.

More power given to the Courts

Australian courts now have expanded powers to provide remedies for unfair contract terms. Under the updated legislation, upon receiving an application, courts now have the power to:

Void, vary or refuse to enforce a contract (if such action is necessary to prevent anticipated loss or damage);
Prevent use or reliance upon the UCT in an existing or future contract; and
Order that any existing contracts containing similar unfair terms also be declared void.

Interaction with Fair Work Legislation (Closing Loopholes No.2) Act 2024

Recent amendments to the Fair Work Act 2009, introduced a suite of significant workplace reforms, effective 26 August 2024. Relevant to the UCT regime, it provides a new avenue for independent contractors earning below the high-income threshold to challenge unfair contractual terms through the Fair Work Commission (FWC). This ‘quick, flexible and informal’ procedure for dealing with UCTs is expected to lead to more litigation in this area. The test for unfairness is similar to the one used under the ACL and considerations include imbalance in bargaining power, harsh or unreasonable terms, and significant imbalance in rights and obligations. Similarly, the FWC has the authority to declare a UCT void and unenforceable.

These amendments introduce an additional risk factor for practices, given the high number of non-employee engagements in the sector, complementing the changes to the UCT regime that commenced on 9 November 2023.

How to navigate compliance as a medical or allied health practice?

These changes are especially relevant to the medical and allied health industries, as practices frequently enter into contracts with suppliers, service providers, contractors, and landlords.

With the expansion of the UCT regime and increased enforcement by ASIC and ACCC, taking proactive steps to ensure your contracts are fair and equitable are crucial for practices. Recommended actions to consider are outlined below.

1. Assess your business classification

Determine whether your practice falls under the broadened definition of a small business, i.e., fewer than 100 employees or an annual turnover of less than $10 million. If your practice meets these criteria, you will be subject to the UCT regime.

2. Review standard-form contracts

Evaluate all current or future 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 to help ensure your contracts align with current UCT laws. They can provide guidance and assistance in making any necessary amendments or revisions.

4. Take prompt action

Take prompt action to amend any identified unfair contract terms or make necessary revisions to your contracts to avoid increased penalties.

How can we help?

If you have not reviewed your standard form contracts, including your agreements with professionals, employment agreements, consent forms and other contracts in your practice in the past year with these changes, there’s no better time to get your contracts them reviewed.

Our team at You Legal has extensive experience working with medical and allied health practices - we understand the ins and outs of this industry and the unique risks practices may face.

To discuss the various ways we can help, contact our team here, and we will put you in touch with the best professional for your needs.

Unfair Contract Terms: Are Your Medical Practice Contracts Compliant?