Unfair Contract Terms: The Law for Small Business

Unfair terms in standard-form contracts with small businesses are illegal in Australia, not merely unenforceable, and a court can impose serious civil penalties for using one. That cuts both ways for you: it protects you from the supplier, landlord and software agreements you're handed, and it applies to the terms and conditions you hand your own customers. Here's what makes a term unfair, who's covered, and how to check your paperwork.

Who the law protects

The unfair contract terms (UCT) regime sits in the Australian Consumer Law and covers two kinds of contract: consumer contracts and small business contracts. To be a small business contract, the agreement has to be for goods, services, or the sale or grant of an interest in land; it has to be standard form; and at least one party has to pass the small business test.

Test	Threshold (from 9 November 2023)
Employees	Fewer than 100 people, counting casuals employed on a regular and systematic basis
or turnover	Under $10 million for the previous income year
Contract value	No cap under the Australian Consumer Law. For financial products and services under the ASIC Act, a $5 million upfront price cap still applies

You only have to satisfy one of the first two limbs, and it's assessed at the time the contract is entered into. The old value thresholds — $300,000, or $1 million for contracts running more than a year — were scrapped, and the employee limit jumped from 20 to 100.

That change matters in both directions. If you employ eight people, you're protected when you sign a franchise agreement, an equipment lease or a supplier's supply terms. If you sell to other small businesses on your own standard terms, you're the one who has to get the drafting right.

What makes a contract "standard form"

A standard form contract is one side's document, offered on a take-it-or-leave-it basis. Once someone alleges a contract is standard form, it's presumed to be one, and the business that supplied it has to prove otherwise.

Courts weigh up whether one party had most of the bargaining power, whether the document was drafted before any discussion happened, whether the other side was effectively told to accept or reject it, whether they had a real opportunity to negotiate, and whether the terms reflect anything specific about that party or that deal. Since November 2023 there's an extra factor: how many times the business has used the same or a substantially similar contract.

Small tweaks don't rescue you. The law now says a contract can still be standard form even if the other party negotiated changes that were minor or insubstantial, or picked options from a menu you set. Letting a customer choose Plan A or Plan B is not negotiation.

In practice that captures nearly all small business paperwork: website terms, online sign-ups, service agreements, subscription plans, supply terms, credit applications, equipment and vehicle leases, freight and storage terms. Our guide to types of business contracts covers which of your documents are likely to be standard form.

The three-part test for an unfair term

All three limbs must be made out before a court will call a term unfair:

Significant imbalance. The term tilts the rights and obligations heavily one way.
Not reasonably necessary. It goes further than needed to protect the legitimate interests of the party it favours. The burden sits on that party to justify it.
Detriment. Applying or relying on the term would cause harm — financial or otherwise — to the other party.

Courts look at the contract as a whole and at how transparent the term is: plain language, legible, presented clearly, and readily available to the person signing. A punchy clause buried in a linked PDF nobody opens is far more exposed than the same clause spelled out on the quote.

Terms that get flagged

Term	Why it's a problem	A safer version
Unilateral variation — "we may change these terms or prices at any time"	Only one side can move the goalposts	Give notice, and a right to exit without penalty if the change isn't accepted
Automatic renewal with a long cancellation window	Customers get rolled into another term they didn't choose	Send a reminder before renewal and allow a realistic cancellation period
Excessive termination or exit fees	Charging out the whole remaining contract value regardless of actual loss	Cap the fee at a genuine estimate of your unrecovered costs
One-sided termination rights	You can walk away at will; they're locked in	Mirror the notice periods
Broad indemnities	Customer covers your losses, including from your own negligence	Limit the indemnity to loss the customer actually caused
Sweeping liability exclusions	Purports to exclude rights the law guarantees	Carve out non-excludable rights explicitly
"Our records are conclusive" or "we decide if you've breached"	One party judges its own case	Use an objective standard and a dispute process

Attempting to sign away consumer guarantees is a separate risk on top of the UCT rules — see consumer guarantees and refunds.

The ACCC has named unfair contract terms among its compliance and enforcement priorities for 2026-27, with a stated focus on harmful cancellation terms: automatic renewals, early termination fees and non-cancellation clauses.

What the law doesn't touch

The regime deliberately leaves some things alone:

The upfront price. Nobody can argue your price is unfair. How that price can be changed mid-contract is fair game.
The main subject matter of the contract — what you're actually selling.
Terms required or expressly permitted by a law of the Commonwealth, a state or a territory.
Excluded contracts, including company constitutions and contracts for the carriage of goods by ship.
Genuinely negotiated contracts, and contracts where neither side is a consumer or a small business.

The penalties

Since 9 November 2023, proposing, applying or relying on an unfair term is a contravention in its own right. Since 28 March 2026 the maximums are (as at September 2026):

Who	Maximum penalty per contravention
A company	The greater of $100 million, three times the benefit obtained, or 30% of adjusted turnover during the breach period
An individual	$2.5 million

The number that should worry a small business isn't the headline figure — it's the multiplier. Each unfair term in each contract is a separate contravention. One template with three problem clauses issued to 200 customers is not one breach.

Realistically, the ACCC isn't pursuing five-person businesses for $100 million. The practical exposure for you is losing the clause you were counting on: a court can declare the term void, order injunctions and compliance programs, and order redress for affected customers. The rest of the contract keeps operating if it can work without the void term. If your late-payment or termination clause is the one struck out, that's your recovery position gone — worth reading alongside chasing unpaid invoices.

Older agreements aren't automatically caught. Contracts entered into before 9 November 2023 sit under the previous rules, where an unfair term is void but no penalty applies. Renew that contract on or after 9 November 2023, or vary or add a term, and the current regime applies.

How to check your own contracts

List every standard document you issue — website terms, quotes, service agreements, subscription plans, credit applications, membership forms, purchase orders.
Mark every clause only one side can use. Termination, variation, price change, suspension, indemnity, liability, renewal, fees.
Justify each one. What legitimate interest does it protect, and could a narrower clause do the same job? If you can't articulate the interest, cut the clause.
Mirror the rights. If you can terminate on 30 days' notice, so should they.
Cap exit charges at what you'll actually be out of pocket, and say how the figure is calculated.
Fix the renewals. A reminder before rollover plus a workable cancellation window is cheap insurance.
Fix the transparency. Plain English, readable size, put in front of the customer before they sign — not just hyperlinked.
Version and date it, and diarise a review. If you sell online, work through website terms and conditions at the same time.

Pushing back on a supplier's terms

Ask for the change in writing before you sign, and name the clause and the reason: "clause 12 lets you increase fees at any time without giving us a right to exit, which looks like an unfair contract term." Suppliers who've had their templates reviewed usually know exactly what you mean, and many now have a pre-approved fallback wording.

If you've already signed, you don't necessarily need the supplier's agreement — an unfair term may already be void. Get advice before you act on that assumption, and keep performing the rest of the contract in the meantime.

If they won't move, you can report the term to the ACCC or your state or territory fair trading office. For loans, insurance and other financial products and services, ASIC is the regulator. The Australian Small Business and Family Enterprise Ombudsman can help with the dispute itself. Reporting doesn't get you a personal remedy — the regulator decides what to pursue — but it does feed enforcement, and the ACCC's sweeps of industry templates have driven a lot of quiet rewriting.

Key takeaways

Unfair terms in standard-form contracts are illegal, not just unenforceable, and each unfair term in each contract is a separate contravention.
You're protected if you employ fewer than 100 people or turn over less than $10 million — one limb is enough, tested when the contract is signed.
A term is unfair only if it causes significant imbalance, isn't reasonably necessary to protect a legitimate interest, and would cause detriment.
Unilateral variation clauses, lock-in auto-renewals and exit fees untethered from real cost are the ACCC's stated focus for 2026-27.
Maximum penalties for companies are the greater of $100 million, three times the benefit, or 30% of adjusted turnover (as at September 2026); $2.5 million for individuals.
Your price and the main subject matter can't be attacked as unfair — but the clause letting you change the price can be. Review your own templates before someone else does.

Where to get help

ACCC (accc.gov.au) — plain-English guidance on unfair contract terms and standard form contracts, plus the reporting form for terms you think are unfair.
ASIC (asic.gov.au) — the unfair contract terms regime as it applies to loans, insurance and other financial products and services.
Your state or territory fair trading or consumer affairs office — for local complaints and business guidance.
Australian Small Business and Family Enterprise Ombudsman (asbfeo.gov.au) — assistance and dispute resolution when a commercial dispute stalls.
A commercial lawyer — worth the fee for a one-off review of the template you issue hundreds of times, or before you sign a long lease, franchise or finance agreement. Your accountant can help you work out whether you meet the turnover limb.