- When someone buys products or services, they enter into a contract with the seller.
- Some contracts are written documents. But, there is still a contract even if there is no written document.
- Written contracts have terms and conditions that set out rights and responsibilities.
- There are laws protecting consumers and small businesses from unfair terms in standard form contracts.
What the ACCC does
- We help consumers and businesses understand the law around unfair contract terms.
- We can investigate and may take some form of compliance or enforcement action to protect consumers and small businesses from unfair contract terms.
What the ACCC can't do
- We don’t investigate individual complaints about contracts.
- We don’t provide legal advice.
When someone buys products or services, they enter into a contract with the seller.
A contract is an agreement made between two or more parties that is legally enforceable. Legally enforceable means if one of the parties breaks the contract, the other party can take legal action against them.
There is generally a contract whenever a seller makes an offer and a buyer accepts it. The buyer can accept a contract:
- by signing a written document
- by saying they accept it
- through actions such as paying for a product or clicking ‘I agree’ on a website.
It’s illegal for businesses to force or pressure consumers or other businesses into entering a contract.
Written contracts have terms and conditions that set out the rights and responsibilities of each party.
When you buy a product or service, certain consumer rights always exist under the law, and the terms and conditions of a contract can’t take away these rights.
Make sure you read and understand the terms and conditions of a contract before you accept it. If you don’t understand the terms and conditions, talk to a lawyer.
Sometimes, a buyer and seller work out terms together before they agree to a contract. But often, a business will use a pre-written contract for all their customers that the customer can’t change, they can only take it or leave it. This is called a standard form contract.
There is a presumption that a contract is a standard form contract, so the party that prepared the contract has to prove that it isn’t.
In deciding what a standard form contract is, a court will consider whether:
- the party that prepared the contract has all or most of the bargaining power in the transaction
- the contract was prepared without or before any discussion between the parties about the transaction
- the other party could only either accept or reject the terms of the contract as presented
- the other party was given any real opportunity to discuss the terms of the contract
- the terms of the contract consider any specific features of the other party or the transaction.
Determining whether a term is unfair
Laws protect consumers and small businesses from unfair terms in standard form contracts. Contract terms are unfair if they:
- give one party a significant advantage over the other
- are not necessary to protect the legitimate interests of the party with the advantage, and
- would cause financial or other harm to the other party if enforced.
Only courts can make final decisions about whether a contract term is unfair.
In deciding whether a term is unfair, the court will consider all the rights and responsibilities for each party under the contract, as well as whether the term is transparent. A term is transparent if it is in reasonably plain language, clear, and not hidden.
The court will consider whether any other terms in a contract offset the potential unfairness of a term.
Example of an unfair contract term
Business A provides 3 year contracts for broadband services. A term of Business A’s contract allows it to change the price for the services at any time during the 3 years. The customer is not allowed to end the contract, even if they don’t agree to the price increase.
Business B provides 3 year contracts for broadband services. A term of Business B’s contract allows it to change the price for the services at any time during the 3 years. However, another term of Business B’s contract allows customers who don’t agree to a price increase to end the contract without any penalty.
The term that allows Business A to change prices during the contract term is likely to be an unfair contract term. However, the similar term in Business B’s contract is likely to not be an unfair contract term because the other term balances it.
The unfair contract terms law does not apply to:
- terms that are specifically required or permitted by another law
- terms that set out the price to be paid
- terms that define the product or service being supplied under the contract
- company constitutions
- commercial contracts for the shipping of goods by sea.
We have a guide to help consumers work out whether contract terms might be unfair.
For small businesses
Small businesses are protected from unfair terms in standard form contracts for products, services or land transactions if:
- they have 20 or fewer employees
- the upfront price payable is under $300,000, or $1 million for contracts lasting more than 12 months.
Employees are counted by:
- considering the number at the time the contract is agreed
- including any casual employees if they are employed on a regular and systemic basis
- not including the employees of any related business entities.
Businesses using standard form contracts should make enquiries to work out whether their customers will fall under these thresholds. If in doubt, it may be safest for the business to assume their customers will.
The upfront price payable includes any payments for the product or service being supplied under the contract, which are disclosed when the contract is agreed. This includes any payments that are required if certain things happen under the contract. However it does not include any amounts that can’t be worked out at the time the contract is agreed.
A change to the law will come into effect on 10 November 2023 that will replace the above thresholds. Small businesses will be covered by the unfair contract terms protections for any new or varied standard form contract from that date if they:
- have 100 or fewer employees, or
- make less than $10 million in annual turnover.
Financial products and services
For information about unfair terms in contracts for financial products and services, such as loans and financial advice, contact ASIC, which regulates these types of contracts.
Types of terms that may be unfair
The law sets out examples of terms that may be unfair, including:
- terms that allow one party (but not the other) to avoid or limit their responsibilities under the contract
- terms that allow one party (but not the other) to end the contract
- terms that penalise one party (but not the other) for breaking or ending the contract
- terms that allow one party (but not the other) to change the terms of the contract.
See our summaries of industry reviews for more information on the kinds of terms that may be unfair:
If a court decides that a term is unfair, it will be ‘void’. This means it will no longer apply to the parties to the contract.
If the rest of the contract can continue without that term, then rest of the contract will continue to apply to the parties.
A change to the law will come into effect on 10 November 2023 that will mean it is against the law to use or rely on an unfair contract term in a consumer or small business standard form contract. A court will also be able to impose serious financial penalties where businesses break these laws.
A consumer can generally end a contract with no charge if:
- the business has said anything false or misleading about the goods, services, terms or conditions
- a service has not met a consumer guarantee
- the consumer is in a cooling-off period.
A cooling-off period means a consumer can change their mind in a certain time period after buying something. Cooling-off periods are written into the terms of some contracts. Consumers have an automatic right to a cooling-off period when they buy goods or services through telemarketing or door-to-door sales.
If you have a problem with an unfair contract term, you should first try contacting the business. You can ask the business to remove or change a term you think may be unfair.
Consumers can also contact the consumer protection agency in their state or territory.
Small businesses can seek assistance through an ombudsman or dispute resolution service.
You can seek legal advice by contacting a legal service in your state or territory.
You can contact the ACCC for help understanding your options.
Chicken meat processors address potential unfair contract terms (media release)