Changes to Australia’s Unfair Contract Terms
Unfair terms are now illegal. Protect your business before it is too late.
In November 2023, Australia’s strengthened unfair contract terms (UCTs) laws came into effect with the Treasury Laws Amendment (More Competition, Better Prices) Act 2022. Before this change in law, the risk was that UCTs would be void and unenforceable. However, now UCTs are illegal, and businesses and individuals can face substantial penalties. Source: Treasury Laws Amendment (More Competition, Better Prices) Act 2022
At Law Team, our priority is to support clients with clear legal guidance to avoid these penalties, which is why we have put together this informative guide. Read on to learn more about unfair contract terms and how they affect your business.
At a Glance: Changes to UCT Laws
Since November 2023, unfair contract terms are illegal and can attract significant financial penalties for businesses and individuals.
The expanded definition of “small business” means the UCT laws now apply to almost all Australian businesses.
Each unfair term is treated as a separate breach, resulting in immediate and significant risk.
What is an Unfair Contract Term (UCT)?
A term in a standard form contract can be considered unfair if it creates a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the advantaged party, and would cause financial or other detriment if applied or relied on. Source: ACCC - Types of terms that are or may be unfair
The law gives examples of contract terms that may be considered unfair, including terms that:
Let one party limit or avoid its obligations, while the other party cannot
Allow only one party to terminate the contract
Impose penalties on one party for breaching or ending the contract, but not the other
Give one party the power to change the contract terms without the other party having the same right
When do unfair contract term laws not apply?
Certain types of terms and agreements are exempt from the unfair contract terms law, such as terms required or permitted by another law, terms that clearly state the upfront price, and terms that define the contract's main subject matter. It also does not apply to company constitutions or commercial contracts for shipping goods by sea. Source: ACCC – When unfair contract terms law doesn't apply
What is a standard form contract?
A standard form contract is typically a “take-it-or-leave-it” agreement prepared by a business, with little or no real opportunity for the consumer to negotiate the terms. Generally, all consumer contracts are presumed to be standard form contracts unless the business can prove otherwise. Courts will consider whether the business uses the same or very similar contracts regularly, as well as how frequently those contracts are issued to different customers. Source: ACCC - About standard form contracts
A contract can still be a standard form contract even if:
The consumer was allowed to negotiate only minor or insignificant changes to the terms
The consumer could select a term from a limited set of options decided in advance by the business
The business allowed a third party to negotiate a different version of the contract
This means that even if some customers or small businesses can negotiate certain terms, a contract offered broadly to others may still be treated as a standard form contract.
What were the key changes under the new UCT laws?
The definition of “small business” has expanded, giving more businesses protection under UCT laws
Previously, the protection from UCTs was only available for small businesses with fewer than 20 employees. The new law changed this threshold to businesses with fewer than 100 employees and with a turnover of less than $10 million. This new definition captures about 99% of Australian businesses, meaning the updated UCT laws govern virtually all Australian businesses.
Massive penalties for breach of UCT laws
Before the amendment, the major risk was that UCTs would be void and not enforced; however, now individuals and businesses can be subjected to massive fines for including unfair terms in contracts. Corporations face penalties of up to $50 million, while individuals, including directors who approve these contracts, can be personally fined up to $2.5 million per breach. Source: ACCC welcomes new penalties and expansion of the unfair contract terms laws
| Feature | Old Law (Pre-2023) | Current Law |
|---|---|---|
| Legal status | The term was “void” | The term is illegal |
| Corporate penalty | $0 | Up to $50 million |
| Individual penalty | $0 | Up to $2.5 million |
| Protection threshold for businesses | Fewer than 20 employees | Fewer than 100 employees or less than $10 million turnover |
Lessons from the federal court
We can look at two landmark cases to see how dramatically the risk has escalated:
Fujifilm (Before Penalties Applied): Fujifilm was found to have 38 unfair contract terms. At the time, the consequences were limited to regulatory action and reputational damage. Under today’s UCT laws, each unfair term is considered a separate breach and could attract significant penalties.
PayPal (2024): PayPal narrowly avoided severe penalties by removing its unfair “Fee Error” clause just 24 hours before the strengthened penalty regime commenced. Under the new framework, there is no grace period. Unfair terms now carry immediate and substantial financial consequences. Source: ASIC Media Release - Court declares PayPal Australia used an unfair contract term
How to ensure your standard form contracts remain compliant
The strengthened UCT laws now regulate most Australian businesses, and non-compliance carries significant financial risk. At Law Team, our experienced commercial lawyers provide clear, practical advice to help you stay compliant. Connect with Law Team today to confidently navigate the complex legal landscape of unfair contract terms.
About the Author: Erin Vassallo
Erin Vassallo is the Principal Solicitor and founder of Law Team, a values-led law firm with a strong reputation across New South Wales and Queensland. With over two decades of experience in commercial, construction, and property development law, Erin is a trusted advisor to developers, landowners, and business owners navigating complex projects and legal risks.
Her hands-on experience includes joint ventures, structuring development deals, contract negotiation, risk mitigation, and project governance across residential, commercial, and mixed-use developments. Erin holds qualifications in law, political science, mediation, and disruptive strategy (Harvard Business School) and is the founder of Certified BCorp Law Team, committed to ethical business practices and social impact.
Frequently Asked Questions
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No, UCT laws cover standard form contracts for both consumers and small businesses (with fewer than 100 employees or a turnover of less than $10 million).
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No. UCT protections apply to all standard form contracts, regardless of how they are agreed to. This includes contracts that are signed, accepted by clicking an “I Agree” button online, or verbally agreed to. If the contract was offered on a “take-it-or-leave-it” basis, without any real opportunity to negotiate the terms, it can fall under the unfair contract term penalty regime.
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Yes. Since the 2023 legislative update, simply proposing or including an unfair term in a standard form contract is a specific violation of the law.