Bruce Billson (Dunkley, Liberal Party, Minister for Small Business) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The coalition has for many years argued that in many cases small businesses have no more market power or ability to vary take-it-or-leave-it standard form contracts than an individual consumer, yet small businesses lack the consumer style protections that provide for unfair terms to be struck out of contracts.

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 implements the government's 2013 election commitment to provide a 'fair go' for small businesses, by extending to the small business sector unfair contract terms protections currently available to consumers. This is a long sought-after and very much welcomed new protection for small business.

This bill will amend the Australian Consumer Law, which is set out in schedule 2 of the Competition and Consumer Act 2010, and the Australian Securities and Investments Commission Act 2001 (ASIC Act), to extend the consumer unfair contract terms protections to cover standard form, small business contracts that are valued below a prescribed threshold.

Consumers have been protected from unfair contract terms since 2010. However, the former government, despite its initial interest and intentions, decided not to proceed with offering similar protections to small business.

It is time that small businesses, which often face the same vulnerabilities as consumers, also receive protections when offered 'take it or leave it' contracts. Between 1 January 2011 and 31 December 2014, the Australian Competition and Consumer Commission received 1,375 small business complaints relating to unfair contract terms. This figure does not include complaints directed to state and territory fair trading bodies, state small business commissioners and industry ombudsmen.

Under the new protections, a court will be able to strike out a term of a small business contract that it considers unfair. For example, a term that allows the business offering the contract to unilaterally change the price or key terms could be considered unfair.

In this way, the bill provides a remedy for small businesses when an unfair contract term is included in a standard form contract. This will reduce the incentive to include and enforce unfair terms in contracts with small businesses, providing for a more efficient allocation of risk and giving small businesses greater confidence to enter into contracts to invest and grow their business.

This bill is an important reform for small businesses and reflects a key part of the Abbott government's small business policy platform from the 2013 election. The bill is an Australian first, and in designing the legislative amendments the government consulted extensively with stakeholders.

In 2014, the Commonwealth Treasury, on behalf of Commonwealth, state and territory consumer affairs ministers, conducted a 10-week public consultation process to gather information about the extent of the problem and the views of stakeholders on policy options. Over 80 submissions and around 300 survey responses were received as part of this process.

Stakeholder feedback indicated that small businesses across a wide range of industries have concerns about unfair terms. Small businesses, like consumers, are vulnerable to the inclusion of unfair terms in standard form contracts as they can lack the time and legal expertise to critically analyse the detail of contracts.

The consultations also found significant support for addressing the problem through a legislative extension of the current consumer unfair contract terms law.

I note that state and territory governments were actively engaged in the development of this measure and the consumer affairs ministers formally agreed to the proposal to amend the Australian Consumer Law in April 2015, as required under the Intergovernmental Agreement for the Australian Consumer Law. In line with the Corporations Agreement 2002, the Commonwealth notified the states and territories that these legislative protections would be mirrored in the ASIC Act.

Public consultation on the exposure draft legislation was held between 28 April and 12 May 2015, providing stakeholders with the opportunity to comment on the draft bill. It received almost 50 submissions and my department, the Treasury, also held discussions with a number of stakeholders.

I would like to thank all of the stakeholders that engaged with the government through these consultations. Your feedback has helped ensure this important reform will be implemented effectively.

I would now like to turn to the provisions of the bill.

In both the ASIC Actand the Australian Consumer Law, this bill applies the unfair contract terms provisions to small business contracts. A contract will be a small business contract if at least one party to the contract has fewer than 20 employees and its value is below the prescribed threshold.

A headcount approach is used to determine whether a business has fewer than 20 employees by headcount, excluding casual employees not employed on a regular or systematic basis. This characterisation of small business, which is used by the Australian Bureau of Statistics, has been chosen as it provides a proxy for the human resources available within a small business.

A headcount approach, rather than full-time equivalent, will also simplify the application of the law. It assumes that small businesses will find it easier to recall the number of people they employ at the point of entering into a contract, rather than a full-time equivalent calculation.

It is important to note that only casual employees employed on a 'regular and systematic' basis will be counted as part of this definition. This is intended to account for factors such as seasonal variations in employee numbers which are not part of a business's normal workforce.

The second limb of the small business contract test is that the value of the contract must not exceed $100,000, or $250,000 for a multi-year contract. This 'transaction value' threshold was chosen so that the protections apply when small businesses engage in day-to-day transactions, while encouraging them to conduct due diligence on large contracts fundamental to the success of their business. There is a significant difference between high value contracts and those day-to-day contracts thrust before small business. It is right and reasonable for all enterprises to seek advice on larger contracts. Responsible and savvy small businesses understand this responsibility.

Based on the 2014 survey results, around four in five small business standard form contracts will be covered by this reform, and as traders review their standard form contracts to comply with the new laws the practicalities and the perceptions of traders will work to ensure that in addressing questions of fairness action to remove unfair terms from contracts below the thresholds will see changes flow through to businesses and transactions above the thresholds. The ACCC's enforcement action, too, can have an impact beyond the businesses or transactions falling within these thresholds.

Determining how this threshold applies to a contract did attract significant feedback in the exposure draft consultations and this will inform the development of guidance material to support the implementation of the law.

The final element of the bill I would like to highlight is the mechanism that will allow the government to exempt laws that it deems are equivalent to the unfair contract terms law.

This mechanism recognises the importance of avoiding regulatory duplication and unnecessary compliance costs in sectors where there are equivalent and enforceable protections against unfair contract terms. In designing this regulation-making power the government has taken care to ensure the power is not broader than is necessary to achieve this objective.

Specifically, this bill provides that to grant an exemption the responsible Commonwealth minister must be satisfied that the law or regulation provides enforceable protections for small businesses which are at least equivalent to the unfair contract terms protections. In forming such a view, consideration must be given to a number of prescribed matters, namely the impact on small businesses, businesses generally and the public interest.

I will now turn to the implementation of this important reform.

This bill will take effect six months after it receives royal assent. Over this six-month period, the regulators will engage with industry and produce guidance material and other information to assist traders to comply with the new law. As part of the 2014-15 budget, the government provided $1.4 million to the Australian Competition and Consumer Commission for this purpose.

In conclusion, this bill introduces an important reform that will give small businesses access to a level playing field to grow, invest and create jobs. With this legislation, the government is restoring time and resources back to small businesses to invest in their business's success rather than navigating a costly and time consuming maze of contract terms.

Stakeholder feedback provided in 2014 and 2015 has helped the government to settle on an appropriate model for these protections. The selected transaction value thresholds ensure the protections apply when small businesses engage in day-to-day transactions, whilst encouraging small businesses to conduct due diligence on large contracts fundamental to the success of their business. The bill also provides a mechanism that will allow the government to exempt laws that it deems are equivalent to the unfair contract terms law and enforceable.

The bill is part of the Abbott government's strategy to ensure Australia is the best place to start and grow a business. It meets our 2013 election commitment to extend to the small business sector unfair contract terms protections currently available to consumers. It is an important reform, an Australian first, and the latest in the government's ongoing commitment to the men and women of Australia.

Before commending the bill to the House I would like to acknowledge the diligence and professionalism of the Treasury officials who have engaged incredibly constructively with the many stakeholders involved in the development of this legislative proposal to implement our election commitments. I commend the bill—it is a ripper.

Debate adjourned.