Time to “take out the garbage” (from standard form terms of business)

Recent ACCC prosecutions indicate it’s time to “take out the garbage” (from standard form terms of business)

In September, I wrote in The H.R. & Recruiters’ Casebook that recruiters, who use standard form terms of business, needed to be aware that the Australian Competition & Consumer Commission (ACCC) had commenced court action to enforce the unfair terms in standard form small business contracts provisions, which were introduced into the Australian Consumer Law in November last year.

ACCC v. JJ Richards & Sons

One of the companies against which the ACCC took action recently is JJ Richards & Sons Pty Ltd, a large privately-owned waste management company (JJR & Sons). ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224 (13 October 2017).

The case moved forward very quickly, seemingly with JJR & Sons admirable co-operation.

On 13 October, JJR & Sons admitted that each of the following terms in its standard form waste management contracts caused a significant imbalance in the parties’ rights and was not reasonably necessary to protect its legitimate interests.

  • Automatic renewal;

  • Unilateral price variation (after notice);

  • Agreed times (for waste collection – best endeavours but no liability);

  • No credit without notification (JJR & Sons charged customers if they attended for waste collection but were unable to gain access, etc);

  • Exclusivity (customer not to engage another waste removal firm);

  • Credit terms (entitlement to suspend services with no corresponding right to withhold payment for failure to provide services);

  • Indemnity (wide ranging hold harmless provision); and

  • Termination (clause preventing customer from terminating whilst payments outstanding).

As a result, the Federal Court of Australia held that each of the impugned terms was void and imposed orders (by consent):

  • restraining JJR & Sons from relying on the impugned terms;

  • restraining JJR & Sons from using standard form contracts containing an impugned term;

  • requiring JJR & Sons to publish corrective notices;

  • requiring JJR & Sons to provide a copy of the Court’s orders to each person who was a small business that entered into one of the impugned contracts after 12 November 2016. (There were 26,000 contracts. It will be up to JJR & Sons to work out how many of them were with customers, who employed fewer than 20 persons – i.e. were “small businesses”!); and

  • requiring JJR & Sons to establish an Australian Consumer Law compliance program to be undertaken by each employee or other person involved in its business. who deals with Australian customers in order to minimise the risk of future reliance on unfair terms.

It’s worthwhile to look bit more detail at the reasons why several of these clauses were considered to be unfair. That’s because they’re the type of clause that crop up from time to time in recruiters’ standard form terms of contract. You might even be using some of them yourself if you’ve not taken the opportunity to have your terms of business reviewed lately.

Unilateral price variation

The court said that clause was unfair because, “…there was no corresponding right given to its customer to terminate the contract or obtain a change in the scope or scale of the service... or a lower price."

Exclusivity

The court said that the clause created a significant imbalance in the parties’ rights and obligations, because, “…it limited JJR customers’ general right to contract with whomever they want - even when the customer was seeking additional services to those provided by JJR”.

Indemnity

The clause was unfair because, “… it applied even where the loss was not the fault of the customer, or could have been avoided or mitigated by JJR. As there was no corresponding benefit to the customer, the clause caused a significant imbalance in the parties’ rights and obligations.”

ACCC v MSY Group Case - No refunds

Although ACCC v. MSY Group wasn’t prosecuted as a standard form contract case; it does involve provisions that appear in many standard form terms of business.

In this case, MSY Group was prosecuted for publishing, on its website, terms and conditions which impliedly excluded remedies that are available under the Australian Consumer Law (ACL).

As a result, the Court declared that the respondents:

  • "engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18 of the ACL;

  • "made false or misleading representations in relation to the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy in contravention of s. 29(1)(m) of the ACL; and

  • " made false or misleading representations in relation to a requirement to pay for a contractual right that is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy in contravention of s 29(1)(n) of the ACL.”

MSI group was ordered to pay $750,000 and pecuniary penalties, a further $50,000 in costs and had injunctions imposed upon it which restrain it from using similar terms future and require it to implement a comprehensive ACL compliance and training program as well as publish corrective notices.

The silent implied representation

What is especially important about this case is that the Court held that a contravention of these ACL provisions could occur, where MSY's terms of business and representations:

... impliedly represented to consumers that their rights were limited when that was not the case. and...were silent in response to the consumer's reference to their specific ACL rights and impliedly represented that MSY ... was not required to provide an ACL remedy to consumers. (My underlining).

Check your candidate replacement guarantees … and how you use them

The decision creates a risk for businesses that insert additional or alternative "remedies" - such as candidate replacement "guarantees" or indemnities - into their terms of business (or who answer questions raised by consumers about their remedies for defective services) and say nothing about the availability of the ACL remedies in circumstances where the ACL remedies apply.

Time for a clean out?

Many recruitment, contracting and staffing services providers might be aware of similar terms to those that were impugned in these cases. Hopefully, they won’t be in their own terms of business because they will have taken the opportunity over the last twelve months to have them reviewed. If they haven’t, then perhaps … it’s time to take out the garbage!

Written and prepared by Andrew C. Wood Hon FRCSA (Life) - Barrister

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