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Government forces Coles and Woolworths to treat small business with contract fairness

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Sunday, March 15, 2015

This month the Federal Small Business Minister, Bruce Billson, released the Food and Grocery Code of Conduct.  This is a big step forward for Australian small- and medium-sized businesses supplying to the supermarket sector.

The Code will force the supermarkets, particularly Coles and Woolworths, to have proper contracts with suppliers to which the supermarkets must adhere. The Australian Consumer and Competition Commission will monitor the Code.

The Code is about fairness and the application of proper contract principles. It comes after disclosure of widespread exploitation of suppliers by the big supermarkets as part of their ‘normal’ business practice. Late last year the ACCC fined Coles $10 million for ‘screwing over’ small business people.

We have watched Minister Billson on this issue for some time. Fixing this supermarket unfairness problem has been a passion of his. See this YouTube video of Bruce explaining his approach to small business fairness.

In our view, the supermarket ‘fairness’ code would not have happened without Bruce Billson’s patient but persistent determination.

The Code:

  • requires retailers and wholesalers to act in good faith;
  • sets out the requirements of agreements between retailers or wholesalers and suppliers, including that they be in writing;
  • limits when retailers or wholesalers can unilaterally or retrospectively vary an agreement with a supplier, and requires any variation and the reason for it to be in writing; and
  • sets out a dispute-resolution process.

This ‘supermarket fairness code’ operates on exactly the same principles as the fair contract laws for small business people that Abbott and Billson promised. Bruce Billson has said that these laws will go ahead in 2015.
Here are the principles of fair contract laws that ICA has been advocating since 2010.

Banks and unfair protections

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Tuesday, December 16, 2014

The Banks are opposing unfair contract protections for small business people. Here’s their submission. But NAB were recently found to have engaged in  “…misleading and deceptive conduct … through its bank officer…” and had a mortgage guarantee set aside.

Extracts from the case National Australia Bank Limited v Smith [2014] NSWSC 1605 (13 November 2014) appear below—

BANKING – a bank advanced money to a company for the purchase of a business and took mortgage security over the domestic residence of the company’s principal and his wife to support their guarantees of the bank’s advance to the company – the company defaulted on the loan – the guarantors sold their residence partially to satisfy the Bank’s claims on the guarantees – whether the Bank engaged in misleading and deceptive conduct or unconscionable conduct in relation to the guarantees and the mortgage – whether these securities are unjust under …

Conclusion and Orders
363.    The Court’s principal conclusions may be briefly stated. The Court has found that Craig and Denise Smith, the second cross-claimants are able to set aside the mortgages and guarantees they signed as part of the Statewide transaction which they entered in December 2004 on several grounds, including misleading and deceptive conduct by the Bank through its bank officer, Mr Shackleton, for breaches of fiduciary duty …

Shopping Centre Council and Franchise Council at ‘war’ over unfair contract protections for small business people

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Tuesday, December 16, 2014

ICA is  delighted that the Shopping Centre Council of Australia has joined us in supporting the proposed unfair contract laws. We’ve agreed that the laws don’t need to apply to shopping centre leases, as leases are currently heavily and well regulated by specific state laws. (No need for double regulation!) But the Council says that it will readily agree for the application of the laws to other areas of their businesses such as self-employed cleaners in shopping centres. And now the Shopping Centre Council and the Franchise Council are at ‘war’ over the issue! Here’s an extract—

Paralysed in a tax office trap

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The Australian union movement has been quite open about its campaign to stamp out independent contractors wherever it can. Running parallel to this, it’s instructive to see that the Australian Taxation Office has shifted to a decidedly anti-independent contractor stance over the last few years.  The outcome (intentional or not) is to aid the unions’ objectives.

Last week Robert Gottliebsen described the behaviour of one tax official as demonstrating a “blood lust in the tax office” toward small business people (Call off the small business attack dogs, April 19). This attitude goes deep because it’s entrenched in ATO’s administrative systems. Take this example.

Over about the last two years the ATO has started rejecting more applications by individuals to receive an Australian Business Number (ABN). The implications are significant because effectively, if you have no ABN, you can’t be in business for yourself!

First, under new national business name registration rules, if you don’t have an ABN, you can’t register a business name. And it’s an offence to use a business name that isn’t registered.

Further, if you operate a business without an ABN, anyone paying you is required to withhold 46.5 per cent of your payment and send this to the ATO. No-one can operate a small business under this cash-denying arrangement.

In addition, without an ABN you’ll find it impossible to register under state workers’ compensation schemes and to receive other regulatory registrations and approvals. Also, submitting tenders for government or private-sector work become impossible without an ABN.

By controlling to whom the ATO allocates ABNs, the government has massive big brother/sister type, master control of the make-up and structure of the Australian workforce and business. This works against the original intent of the ABN system, which was to give the ATO significant auditing capacity to detect non-declaration of incomes.

When the Australian Business Number system was established around 2000, the process intentionally gave an ABN to everyone who applied, including individuals. The reasoning was that this supported tax compliance and auditing. The ATO can and does cross-reference ABNs to bank account details and so on. This huge trawling of data enables, or should enable, the ATO to check claimed business income against actual bank deposits and other transactions.

Over about the last few years this started to change. The ATO began to stop allocating ABNs to individuals. If someone’s a labourer, for example, they now automatically have their ABN application rejected.

ABN applications can be done online through an ATO ‘decision-making’  tool. The tool takes applicants through a series of questions to determine if the individual is an employee or contractor. As an applicant steps through questions, different answers trigger alternative additional questions. Eventually the tool will declare the applicant to be either an employee or contractor. If the declaration is ’employee’, an ABN application is rejected.

More recently the ATO tool appears to have undergone fine ‘tweaking’. It’s not noticeable to the casual observer but to others familiar with the tool, the differences are noticeable. Meanwhile, people applying as individuals are having difficulty obtaining an ABN. At Independent Contractors Australia we’ve been receiving a steady stream of information and complaints for around 9 months. People who want an ABN are being told ‘no’ on the basis of allegedly being an employee, according to the ATO.

In my view the legal basis for the ATO setting itself up as a God-like, online determiner of an individual’s employment status is highly questionable. The  ABN legislation is clear that the main objective of the ABN is to enable businesses to interact with the ATO for taxation purposes. The Act’s objectives do not include that an ABN is a determiner of employment or contractor status. It’s perhaps arguable that the way the ATO currently behaves is beyond its legislative authority.

On a practical level the ATO is likely contributing to a growth of the black/cash economy and tax compliance headaches. The ATO automatically gives an ABN to individuals applying under a company, partnership or trust structure. Yet the ATO has tax compliance problems stopping illegal income-splitting and tax avoidance with small companies and trusts.

And imagine the reaction of people who have their ABN application rejected? They either set up a sham company structure or operate in the cash economy, thus more easily avoid declaring their incomes.

On every measure the denial of ABNs works against the social and economic responsibilities of the ATO. Yet why is this happening? Look back to the objectives of the Australian union movement. Denying ABNs is a most effective way of using the power of government to suppress independent contracting.

The contract key that could swing small business

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Tuesday, January 29, 2013

The Abbott Coalition election plan released over the weekend makes some big claims in relation to small business. Chief among these is that a Coalition government will double the annual rate of growth of small business. They believe it’s from small business that more than half of their million new jobs target will be achieved.

But the question is, does Abbott’s Coalition plan contain substance that can make their small business claims look credible? On one issue alone the answer is yes.

In its plan Abbott’s Coalition has reaffirmed its commitment to extending unfair contract protections – currently available to consumers – to small business. Few people probably understand the significance of this and the extent to which it is an economic game changer and major economic reform initiative. The impact cuts across a massive percentage of business-to-business economic activity.

The unfair contract issue first achieved attention in a 2008 Productivity Commission Report. This lead to the introduction of the Australian Consumer Law in 2010 which contained new provisions to protect consumers from unfair contracts.

The idea of unfair contract laws tends to spark angst from many lawyers and sometimes economists who see the concept as an attack against the sanctity of contract. Such critics generally view commercial contract law as being solely dependent upon ‘offer and acceptance’. Anything that interferes with that is an assault against commercial transactions. This narrow view is not, however, how the courts see the common law principles of commercial contract.

Primarily the consumer unfair contract protections codify in statute what is in common law. For example a contract that enables one party alone to vary the terms of a contract without agreement from the other party is unfair and breaches the Australian Consumer Law. (This reference gives a summary of the main unfair contract provisions.)

The original Australian Consumer Law proposal included applying unfair contract protections to small business people as well as consumers. It had cross-party political support. But a powerful big business, big union and (it’s understood) public sector bureaucracy lobby combined and fought hard behind the scenes against this.

In what can only be described as an act of political treachery against small business the federal Labor government excluded small business from the unfair contract protections with the passing of the law in 2010.

The impact this has on limiting small business capability and growth has to be understood.

In conducting their business, small business people only have a theoretical access to the rule of commercial law. The high expense and complexity of securing commercial contract rights effectively excludes the operation of commercial law when a small business person is confronted by big business or government. In this respect small business people are in a very consumer-like situation.

The consequence is that in a vast percentage of commercial transactions, small business people cannot trust the legal system to secure their rights. This failure of the application of law diminishes commercial trust, inhibits and constrains small business activity and reduces the quality and quantity of commercial transactions. It’s bad for the economy and jobs.

For this reason, the Abbott Coalition commitment to unfair contract protections for small business is a much bigger issue than appears on the surface. It will change massively the relationship between small business people and big business and the public sector bureaucracy. The fact is that when big business and big government engage in commercial transactions with small business the contracts are routinely and appallingly one-sided in giving all power to the larger party.

Abbott’s small business unfair contract protections will force a review and rewrite of such big business, big government contracts putting small business people on a more equal footing before the law. This will create a stronger small business environment. This should directly result in a spur to small business growth as claimed and targeted by the Abbott Coalition.

It won’t happen easily however. Several big business lobbyists have gloated to me that they have locked down sufficient influence within the Abbott Coalition to block the small business unfair contract provisions. But with the Abbott Coalition going so public with the commitment over the weekend it would appear that small business is seen as more important by the Abbott Coalition.

Certainly on this issue, Labor has made itself the partner of big business against small business. This seems strange. But within the twisted political deal making culture that Labor has become, big union-big business deals are more important to Labor than is small business.