Unfair contracts

This is a tale that dispels the myth about a dysfunctional Senate. If anything, my recent experience with the current crop of senators indicates a grouping of real professionals performing diligently in a pressure-cooker environment.

Monday, of course, was an extraordinary day with the successful party room spill against Tony Abbott. What’s not well known is what preceded the spill on Monday morning in the Senate.

We (Independent Contractors Australia) have been campaigning vigorously against the then Abbott Government’s double dealing of small business over the unfair contracts Bill. Robert Gottliebsen had been following this for some time including his exposure of the successful neutering of the Bill by the Franchise Council of Australia, chaired by the 7-Eleven chief executive (The 7-Eleven affair could hit the Coalition at the next election, September 11). (7-Eleven chief executive Warren Wilmot has stood down from the Franchise Council following their worker underpayment scandal.)

The unfair contracts Bill supposedly extends the unfair contract protections currently available to consumers to small businesses. But Abbott’s Small Business Minister Bruce Billson inserted a clause limiting the protections to contracts under $100,000. This is a total victory for the Franchise Council, as no franchise agreement would conceivably be covered.

We had declared our opposition to the Bill in this form asserting it to be a sly con and a breach of the Coalition’s election promise.

For several weeks we’ve been approaching Senators putting our case. In a detailed submission, we explained why there should be no contract value limit.

Everything came to a climax on September 14 with the Senate debating the Bill. Family First Senator Bob Day moved to increase the contract limit to $500,000. The Senate, however, voted for the Green’s amendment, moving the limit to $300,000. This was supported by Labor and all the independents, including Bob Day.

Staggeringly, Senator Cormann for the government warned the senators that if the limit were increased, the government would reject the Bill in the House of Representatives. The outcome would be no unfair contract protections for small business people.

The vote amending the Bill happened around midday. By 2.30pm, Gottliebsen had written this up (How the ALP put small business in the election spotlight, September 14), saying the government had turned its “back on a million people in the small business community”. Around 4pm the spill was announced. By 9.30pm, Tony Abbott was rejected by his Party.

It’s reasonable to surmise that the Senate’s morning events were a big additional straw that broke Abbott’s prime ministerial camel’s back.

The lesson for me, however, was the performance of the Senators. We spoke to everyone: Greens, Labor and the independents. We were listened to with attention and interest.

Senator Leyonhjelm was conceptually against the Bill. He’s a strong free-market person. But he understood that the Bill codifies the structure of commercial contracts. Senator Day saw both sides: he owns a large business using subbies, but built his business from being a plumbing subbie.

We had constructive discussions with all the independents and/or their advisers including senators Lambie, Lazarus, Madigan, Wang, Muir and Xenophon.

Long discussions with several Labor senators occurred. There was an understanding that these protections available to self-employed people were basic.

Unlike employee protections, these protections for small businesspeople only apply to standard form contracts and don’t go to issues such as price. Nothing will stop anyone entering a ‘bad deal’. That’s the risk of being in business. But the protections do mean that, for example, the price of a contract cannot be changed without both parties agreeing. It’s about ensuring that contracts have structural integrity.

The Greens were equally focused. In fact, its amendment to move the contract protection limit to $300,000 was based on a pragmatic assessment of what the government might accept. We wanted no limit, so we didn’t get what we wanted, but the Senate outcome is a big improvement.

Amazingly, the government rejected this outright. Big business interests must have exerted considerable massive influence over the Abbott Government. The amended Bill has now returned to the House of Representatives. The Turnbull Government has an immediate test before it. Will it side with big business over the Coalition’s small business constituency?
Senators are dealing with a swirling crash of detailed, complex, diverse legislation. What I observed was a government trying to bludgeon the Senate into compliance. I observed Senators acting professionally, prepared to consider clear arguments. Yes, there won’t always be agreement. But thank goodness for a Senate independent of the government. Democracy does work and it can let the ‘little person’ be heard.

 [First published in Business Spectator, September 2015]

Since 2010 ICA has campaigned hard for the unfair contract protections available to consumers to be extended to small business people. The Abbott Coalition promised to do this when in opposition and again repeated the promise on winning government.

The Bill is now in Parliament. Yet we’re opposing it! It’s been sent to a Senate Committee for review. Here’s our detailed submission to the Committee.

Our grounds for opposition? There’s been a simple ‘trick’ inserted into the Bill: the protections against unfair contracts are limited to contracts under $100,000.

That means that the people who will miss out on the protections are:

• most IT contractors and all consultants.
• massive numbers of owner-drivers
• small retailers trying to bulk buy goods
• family farmers try to sell bulk products.
• and many more.

The Coalition didn’t promise to protect some small business people some of the time! It’s a sell-out to big business and government bureaucracy who oppose small business protections. The government’s stated excuse for doing this is irrational.
We are hugely disappointed. The restriction is so bad that the Bill needs to be rejected. We’re hoping the Senate Committee will recommend the removal of the $100,000 limit. There should be no limit.

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.