Company Has Close Shave with Unfair Contract Terms

Having a bad hair day? Recently, Advanced Hair Studio Pty Ltd has had to refund customers after the ACCC started wigging out over unfair consumer contract terms. The company made a bald choice with a cancellation clause that made customers pay the cost of the whole treatment program, even if they had only attended one session. Hats off to Advanced Hair, who avoided serious consequences by cooperating with the ACCC, amending its contracts and providing refunds to affected customers. This is a good lesson in growing your business the right way: always make sure your contract terms are fair, or else you’ll have the devil toupee!

If you need advice regarding contracts, it is always advisable to contact a business lawyer or a contract lawyer. It is also important to have a robust refund policy; this is included in our document on Website Terms and Conditions of Use.

What is an Unfair Contract Term?

Under the Australian Consumer Law, an unfair term in standard form consumer or small business contracts will be void. This means the contract will not legally bind the parties.

A term will be unfair if it:

  • causes inequality in the rights and duties of the parties
  • is not reasonably necessary to safeguard the lawful interests of the party enjoying the benefit of the term
  • would cause financial or other damage to a party

If you are a small business employing less than 20 people, this provision also applies to you when:

  • the contract regards supplying goods or service or an interest in land and
  • either the upfront price of the contract is no more than $300,000 OR, if the contract is for more than 12 months, the upfront price is no more than 1 million dollars.

What are the Consequences of an Unfair Contract Term?

Unfair terms are not binding on parties; if possible, the contract will continue to operate without the term. To avoid enforceable action, you can amend a term to remove the unfairness. However, if the clause is essential, the entire contract may become unenforceable. The other party to the contract may decide to take action against you. To learn more about the ACL provisions and how they might affect you, read our guide on the New Law: Unfair Contract Term Protection For Small Businesses.

What Can I Do to Avoid Unfair Clauses in My Contracts?

To avoid ACCC action, make sure all contract terms are clear, legible and available to the party it will affect. Courts will look at terms in the context of the whole contract, so it is important you draft all provisions carefully and fairly. If you’re unsure, LawPath has a draft and review option in our Legal Marketplace. Read more on Why You Need a Lawyer to Review/Draft Your Business Sale Agreement.

For more details on how to draft fair contract provisions, contact a business lawyer or contract lawyer.

Get your business started on the right path. Contact a LawPath consultant on 1800 529 728 to learn more about what you need to start-up your business, obtain a fixed-fee quote from our network of 700+ expert lawyers and have your legal questions answered.

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