Calling all creatives – whether you're a photographer, influencer, copywriter, course creator, or a podcasting pro (you know who you are!), it's time to pay attention if you use contracts (and we hope you do!) in your business. These legal agreements play a vital role in defining the terms of engagement between parties. Recent amendments to Unfair Contract Terms, came into effect on 10 November 2023, and impact how creatives navigate and interpret contracts.
Changes apply to suppliers and customers. So, if you are a creative who is being supplied with a service or if you are the supplier of the service to another small business or consumer you will be impacted.
When did the Unfair Contract changes come into effect?
As of 10 November 2023, the Australian Government passed legislation that tightens up protection against unfair contract terms introducing new penalties and expanding the scope of the existing legislation (Australian Consumer Law (ACL) and Australian Securities and Investments Commission Act 2001 (ASIC Act)).
What are Unfair Contract Changes?
Under ACL, the Unfair Contract (UCT) regime applies to a small business contracts that are considered standard form contracts and are regulated by the Australian Competition and Consumer Commission (ACCC).
What type of business are impacted? If one party to the contract is a business that:
- Employs less than 100 people; or
- Has a turnover for the last income year of less than $10 million.
Under the ASIC Act, the UCT regime will apply to small business contracts if:
- one party is a business that employs less than 100 people or has a turnover for last income year of less than $10 million
- The upfront price payable under the contract does not exceed $5 million
- Under ACL and ASIC Act, part-time employees are counted in the above number.
These changes aim to provide better protection for small businesses, including many creative agencies (including contractors and subcontractors), by addressing unfair terms in standard form contracts. A person will be in breach of UCT laws if they include an unfair term in a standard form contract with a consumer or with a small business.
Common clauses that come under scrutiny are those that deal with termination, breach, obligations of the parties and clauses that impose penalties. The following are examples of terms that may be considered unfair:
- a term that allows you to terminate but not your client;
- A term that allows you to impose a penalty for a breach or termination by the but the client does not have a similar opportunity should you breach or terminate;
- a term that allows you to renew the contract or not renew it, but the client does not have that ability.
What are "Standard Form Contracts"?
According to ASIC, standard form contracts are pre-drafted agreements where one party has substantially more bargaining power than the other. Typically, these contracts are offered on a "take it or leave it" basis, leaving little room for negotiation.
Standard form contracts are frequently used by industries such as gyms, finance, utilities but are also used by creatives and creative agencies when providing services. In the creative industry, standard form contracts are commonly used to streamline transactions creating consistency and efficiencies.
How are Standard Form Contracts Being Impacted?
These changes are intended to scrutinise such contracts more closely to ensure they do not contain any unfair terms that could disadvantage a party entering into such a contract. The courts have more freedom and discretion as to what factors they may consider are relevant in addition to what they previously considered to be relevant such as:
- If one party has more or all the bargaining power;
- whether any communications regarding the contract occurred prior to the contract being completed
- If any terms were rejected or accepted
- If there are any specific allowances or considerations for the other party.
This means that even if there are certain considerations or room for negotiation, it can still be considered a standard form contract so basically more contracts fall within the scope of needing to adhere to unfair contract term regulations, set out by the ACCC
What Do the Changes Mean for Creatives?
For creatives, these changes bring a mix of challenges and opportunities. On the one hand, it means increased scrutiny of the contracts they use, potentially necessitating revisions. On the other hand, it offers greater protection against unfair terms, ensuring a more level playing field when entering into agreements with other businesses.
The specific penalties for breaches related to unfair contract terms can vary depending on the severity of the breach and other factors. The penalties can be imposed by regulatory bodies such as the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC).
Please keep in mind that penalty amounts and legal provisions can change, so it's essential to check with the latest updates from the ACCC or ASIC to get the most accurate and up-to-date information regarding penalties for unfair contract terms under the ACL and other relevant legislation.
What Happens If a Contract is Considered to Have Unfair Terms?
If a contract is found to have unfair terms, those specific terms will be deemed void and unenforceable. This means that the parties cannot rely on those terms in their agreement. However, the rest of the contract remains valid if it can operate without the unfair terms, as governed by the ACL.
What Action Can a Creative Take?
Creatives must be proactive in assessing their contracts for unfair terms. It's essential to review existing agreements and ensure they comply with the new legislation.
Below are some practical steps to help you:
Review your contract:
First things first, review your contract to ensure that there are no unfair terms. Ensure that the contract is written in plain, easy-to-understand language and identify any clauses that may be one sided and broad that may cause harm to the other party if relied on.
For this task, you consider leveraging our expertly crafted industry specific legal templates, designed to balance fairness and clarity.
Also, regarding things like your cancellation/refund policies, make sure they are addressed in initial meetings before signing on the client and provide details separately to the contract. Our templates include clear guidelines on these policies, helping you to communicate effectively with your clients from the get-go.
Reviewing another business’s contract:
- Take the same approach I.e. identify any clauses that may be one sided and broad and that may cause you harm if relied upon by the service provider.
- If yes ask the service provider whether rights under the term are only intended to be exercised in certain circumstances and why the cannot be specified in the term itself. Consider how transparent the terms are.
- Determine what you should amend/keep/remove
Clear and Comprehensive Onboarding Process:
- Provide clients with a detailed onboarding process that outlines what to expect at each stage of the project or engagement.
- Clearly define project scope, objectives, timelines, and deliverables from the outset.
Detailed Project Proposals:
- Create well-structured project proposals that include a breakdown of costs, timelines, and project milestones.
- Specify any potential additional costs or changes in scope that may arise during the project.
Open Communication:
- Establish clear lines of communication and preferred communication channels.
- Encourage clients to ask questions and address any concerns they may have.
Regular Updates:
- Provide regular progress updates to clients, even if there are no major developments to report.
- Keep clients informed about project timelines and any delays that may occur.
Documentation:
- Document all important discussions, agreements, and changes in project scope in writing.
- Use email, project management tools, or dedicated client portals to maintain a record of communications.
Scope Change Procedures:
- Establish a clear procedure for addressing changes in project scope or additional work.
- Communicate any associated costs or delays resulting from scope changes promptly.
Client Feedback and Input:
- Encourage clients to provide feedback throughout the project.
- Act on client input and suggestions when feasible.
Transparency about Fees and Charges:
- Clearly outline your fee structure, payment schedules, and any additional charges in the contract.
- Provide clients with invoices that break down costs in a transparent manner.
Conflict Resolution Process:
- Include a dispute resolution clause in your contract that outlines the steps to follow if conflicts arise.
- Communicate a commitment to resolving issues in a fair and transparent manner.
Client Education:
- Educate clients about industry standards, timelines, and potential challenges they may encounter.
- Help clients understand their rights and responsibilities under the contract.
Accessibility:
- Make yourself accessible to clients for questions and concerns.
- Set reasonable response time expectations for communication.
By implementing these practical steps, creatives can reduce misunderstandings. Clear and open communication is key to ensuring both parties have a clear understanding of their obligations and expectations throughout the project or engagement.
Ready to safeguard your creative business? Browse our tailored contract templates today – updated to comply with the latest Unfair Contract Terms. Get peace of mind with contracts that work for you!
Need help? Don't hesitate to reach out for additional support.
***Disclaimer. Please read!!***
This article is for general information purposes only and should be used solely as general guidance. It does not and is not intended to represent legal advice or other professional advice.
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