29 Jun 2023Unfair contract terms can include non-disparagement clause
Soon there will be 50 million reasons to be wary of the non-disparagement clause in contracts, as the federal government has increased penalties under Australian consumer law for breaching unfair contract terms.
This can involve including a controversial non-disparagement clause in a contract, aimed at stopping people saying nasty things about a company or individual they know through business dealings.
Increased penalties for consumer law breaches
Penalties for companies have been increased for several types of conduct which breach consumer law, from $10 million to $50 million, or three times the benefit derived from the breach, whichever is the greater.
If a court cannot determine the value of the benefit, the penalty can be 30 per cent of adjusted turnover during the period of the breach.
The maximum penalty for an individual rises from $500,000 to $2.5 million.
The changes also introduce penalties for businesses that insert unfair contract terms into their standard form contracts with consumers, franchisees and small businesses.
The changes come into force on 10 November 2023. This gives companies time to adjust their standard form contracts to avoid any possible breaches. The new penalties apply only to new contracts and renewals of contracts from that date.
Other changes to law on unfair contract terms
The protections have been expanded to apply to contracts with companies that employ fewer than 100 people, or have an annual turnover of less than $10 million, irrespective of the value of the contract. (Please see ACCC welcomes new penalties and expansion of the unfair contract terms laws.)
The amendments to consumer law also define more clearly what a “standard form contract” is. (Please see Treasury Laws Amendment (More Competition, Better Prices) Act 2022.)
The maximum penalties apply to a range of offences and civil penalty provisions under consumer law, including false or misleading representations, unconscionable conduct, harassment, coercion, breaching safety standards, and cartel offences under competition law.
The changes are aimed at improving the confidence of small businesses and consumers that a company will not take advantage of them when they sign a contract.
Unfair contracts created by big businesses have been the source of many complaints and have led to court actions.
Use of non-disparagement clause to silence dissent
Non-disparagement clauses aimed at silencing people who are unhappy with a company have often been inserted into contracts for business dealings, settlement deeds and employment.
It meant, for example, that an employee could be sacked for speaking out publicly on matters such as workplace safety.
Some businesses quietly insert such clauses in an attempt to prevent customers from posting negative comments on social media, using the threat of legal action.
When a non-disparagement clause could breach consumer law
Non-disparagement clauses may breach consumer law as “unfair” if they prevent or limit a customer from making genuine, relevant and lawful public comment about goods and services.
In December 2022 a home building company had to admit publicly that a non-disparagement clause in its contracts was unfair within the meaning of Australian consumer law when the Australian Competition and Consumer Commission raised its concerns.
Companies using a non-disparagement clause of this type should get legal advice on whether they could be in breach of the new laws, leaving themselves open to increased penalties.
