The business wrote the contract. That doesn't mean every term in it is automatically fair — and since November 2023, using an unfair term isn't just unenforceable, it's illegal, with penalties that can reach $50 million.
What changed on 9 November 2023
Before this date, a court could only declare a specific unfair term void — there was no penalty for including one in the first place. Reforms to the Australian Consumer Law that took effect on 9 November 2023 made it outright illegal for a business to propose, use, or rely on an unfair term in a standard form consumer or small business contract, with substantial financial penalties attached for the first time.
The three-part test for an unfair term
Under Section 24 of the Australian Consumer Law, a term is unfair if it would cause a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the party who benefits from it, and would cause financial or other detriment to the other party if applied or relied upon. Critically, a term that's clear and transparently written can still be found unfair — plain language doesn't automatically make a one-sided term acceptable.
The penalties are genuinely severe
For each unfair term used, the maximum penalty is the greater of $50 million, three times the benefit gained from the conduct (if it can be calculated), or 30% of the business's adjusted turnover during the breach period. Every individual unfair term in a contract counts as a separate contravention — meaning a standard contract with several problematic clauses, used across many customers, can expose a business to penalties that stack rapidly.
Small businesses are covered too
The reforms significantly expanded coverage: a small business contract is now covered if the business has fewer than 100 employees or under $10 million annual turnover, and the previous monetary cap on the contract value itself was removed entirely under the ACL. This pulled many contracts that previously sat outside the regime — commercial leases, supplier agreements, franchise contracts — into scope for the first time.
A real enforcement example
In December 2022, the ACCC found that Fowler Homes Pty Ltd, a NSW home building company, had included an unfair non-disparagement clause in its consumer contracts, forbidding customers from complaining about its services without express permission. Fowler Homes admitted the term was unfair and entered a court-enforceable undertaking to stop using it — a real, documented example of exactly the kind of clause this law targets.
How to check a contract yourself
- Look for terms giving the business broad, one-sided discretion with no equivalent right for you.
- Check whether a clause could genuinely be justified as protecting a legitimate business interest, or whether it goes further than necessary.
- Look specifically for non-disparagement clauses, broad liability exclusions, unilateral variation rights, and disproportionate exit fees — recurring categories of concern under this regime.
- Remember that clear, plain-language drafting doesn't exempt a term from being found unfair.
What this means practically
- Using an unfair term in a standard form contract is now illegal in Australia, not just unenforceable — with penalties up to $50 million or 30% of adjusted turnover per term.
- Small business contracts (fewer than 100 employees or under $10 million turnover) are now covered without the previous contract-value cap.
- A plainly written, transparent term can still be found unfair — clarity of language is a separate question from fairness of substance.
- Non-disparagement clauses, broad liability exclusions, and one-sided variation rights are recurring categories of real regulatory concern.
Sources
- ASIC — Unfair Contract Terms reforms commence: asic.gov.au
- Bartier Perry — New prohibitions for use of unfair terms, including the Fowler Homes case: bartier.com.au
Related Kibbo Tools
- Contract Red Flags Checklist — spot the clause patterns most likely to fail Australia's unfair terms test.