Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

Firstly, I would like to thank all of those senators who, like Senator Canavan, have contributed to this debate. The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 demonstrates the government's commitment to supporting small businesses by extending to them the unfair contract term protections currently available to consumers.

The government consulted widely in formulating this bill. The 10-week public consultation process conducted in 2014 gathered information about the extent of the problem and the potential policy options. Over 80 submissions and around 300 survey responses were received as part of this process. In April of this year, Commonwealth, state and territory consumer affairs ministers formally agreed to amend the Australian consumer law 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 Australian Securities and Investments Commission Act 2001.

Public comment was sought on the exposure draft legislation, where almost 50 stakeholders made submissions on the drafting of the bill. Feedback through these consultations has 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 because, like consumers, they often do not have the time or legal expertise to critically analyse the contracts offered to them. To address this problem, there was significant support for an extension of the current consumer unfair contract terms law to the small business sector.

This bill extends to consumer unfair contract term protections to small businesses when they agreed to low-value standard form contracts. A court will be able to declare void and unfair term—for example, one that allows one party to unilaterally change a price—contained in a contract where at least one party was a business with fewer than 20 employees when it agreed to the contract and the value of the contract does not exceed $100,000 or, if the contract is for more than one year, $250,000.

Having a transaction value threshold limits protections to day-to-day transactions, where the cost of seeking advice on a contract's terms may be disproportionately high, while maintaining the onus on small business to undertake due diligence for high-value contracts. This bill will have a significant positive impact on Australia's two million small businesses. It is time that small businesses, who often face the same vulnerabilities as consumers, received the same protections when offered take-it-or-leave-it contracts.

Labor has raised several concerns with the bill in their additional comments in the economics committee's report. First, they question the narrow definition of small business. In response, I note that 'businesses with less than 20 employees' has been chosen for the definition as it is a commonly used headcount measure and has been found by the Australian Bureau of Statistics to provide a good proxy for a small business. The headcount approach is also considered to be the easiest the small businesses to implement. It should provide a simple way for all businesses to record the size of their business at any point in time. Labor has also queried the lack of a comprehensive disclosure regime to encourage small businesses to seek professional and legal advice before entering into a contract with another business. The policy is designed to address take-it-or-leave-it contracts only. Contracts that involve the need for diligent negotiation are not included, as those contracts are not standard form contracts.

Labor questioned the lack of a reasonable time limit within which a small business can advise if they consider part or all of the contract to be unfair in order to ensure contract certainty. The government's view is that the nature of some contracts and terms are such that it may not be apparent that a contract term is potentially unfair until such a time as it is applied. Applying an arbitrator time limit for the identification and notification of potentially unfair contract terms would undermine the effectiveness of these protections. Labor has also questioned the definition of 'up-front price'. The government's view is that this means the amount disclosed to the other party at or before the time the contract is entered into. Any future payments will be included as long as they are clearly disclosed at or before the time that the contract is entered into.

Further, Labor also noted concerns with the time period for businesses to change their contracts before the legislation takes effect. The government's judgement is that the transition period for implementation of the new protections follows details stakeholder consultation. Parties have argued for both a longer transition periods to assist businesses to ensure compliance and a shorter transition period to offer small businesses these essential protections as early as possible. The government considers that the transition period in the draft legislation balances these priorities appropriately.

In order to assist businesses to comply, the ACCC will work with businesses and industry groups to identify problematic contract terms and encourage compliance. This approach was taken for the consumer protections and led to most businesses choosing to delete or amend problematic terms. The ACCC has been provided with $1.4 million to support businesses in complying with the extension of the protections to small businesses. This will include the ACCC releasing guidance material at the start of the six-month transition period.

Finally, Labor and some other senators have questioned the $100,000 up-front price threshold for a small business contract. The reforms apply only to contracts worth less than $100,000 or $250,000 for contracts longer than one year. The consultations indicated that these thresholds covered the majority of small business transactions. The $100,000 threshold for the up-front price balances the interest of protecting small businesses with the need to ensure that businesses undertake due diligence for large transactions.

We will be conducting a post-implementation review to make sure that the unfair contract terms protections are working as intended. That review in five years is the right way to consider how the thresholds are applying in practice. The bill introduces measures that will give confidence to small businesses when entering into transactions and support them to grow, invest and create jobs. It is a significant reform that will bring benefits to the broader Australian economy and is part of our long-term plan for a stronger, more prosperous economy, where everyone has the best possible opportunity to get ahead. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.