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Unfair contracts: industry concerned over protection plan

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The Insurance Council of Australia (ICA) is concerned over Treasury’s proposed measures to enhance existing unfair contract terms protections for small businesses.

Treasury has flagged replacing the current definition – which defines a small business as one with less than 20 employees – to one that is based on a turnover threshold of under $10 million. Therefore, if at least one party to the contract has less than $10 million in turnover annually, unfair contract terms protections would apply.

In the other proposal, at least one party to the contract must be a business with less than 100 employees or annual turnover of under $10 million.

“The Insurance Council considers a turnover threshold is problematic because it reflects the gross cost of service rather [than] the size of a company,” ICA says in a submission.

“For example, $10 million of consultancy work will require a much larger size of company than $10 million for an importing business wholesaling heavy machinery where one item might be worth several million but requires only a small number of employees.”

ICA says small businesses should be defined as having less than 20 staff, and where the contract is for an insurance policy as listed in subsection 761G(5)(b) of the Corporations Act.

“This would have the advantage of harmonising the application of unfair contract terms protections to small business insurance with other protections available under the Corporations Act,” it says.

“Another advantage of this approach is that it would exclude standalone contracts such as industrial and specialised risk and liability and others that are typically individually price negotiated contract.

“It is appropriate these types of contracts are excluded since these are purchased by sophisticated buyers of insurance.”

Treasury launched the consultation paper in December after the Government undertook a review of the unfair contract terms protections that were extended to small business contracts in November 2016.

The review found small businesses in certain industries enjoyed better protections, but there was no strong deterrent in place against using unfair contract terms in standard-form contracts.

Treasury says its proposed changes to the definition of a small business would mean lead to greater protection for the community.

Click here for the ICA submission.