24 July 2019
To avoid legal action, Uber Eats recently agreed to amend its standard form contracts with restaurant suppliers following an investigation by the Australian Competition and Consumer Commission (ACCC).
This is a successful regulatory outcome for the ACCC in protecting small businesses from unfair contract terms since changes to the Australian Consumer Law (ACL) took effect in November 2016 to extend consumer protection provisions to small businesses.[1] It also highlights a shortcoming in the legislation as no penalty can be imposed on Uber Eats for its conduct.
Companies that trade with small businesses on standard terms need to take note. The ACCC has stated that the protection of small businesses from the imposition of unfair contract terms by larger businesses is ‘one of its top priorities’,[2] and the Government has already made a commitment to amend the law to strengthen protections for all small business against unfair contract terms.[3]
Biting the hand that feeds you – Uber Eats’ unfair terms
From at least 2016, Uber Eats’ contract terms made restaurants responsible for any liability arising from issues attributed to the delivery of meal orders, including circumstances where the restaurants had no control over that delivery process once the food left their premises. Uber Eats’ contract terms gave it the right to refund customers and deduct that amount from the restaurant, even when the problem with the meal or delivery may not have been the fault of the restaurant.
The ACCC considered such terms were contrary to the unfair contract term provisions of the ACL as they make restaurants responsible and financially liable for elements outside of their control, they cause a significant imbalance between restaurants and Uber Eats, and the terms were not reasonably necessary to protect Uber Eats and could cause detriment to the contracting restaurants.[4]
One way that Uber Eats attempted to shift liability to restaurateurs was by including a term that effectively stated its couriers were agents of the restaurant; something that the ACCC appears to have considered a factual and legal fiction.
Overview of the small business unfair contract terms protections
Since 2010 the ACL has provided consumers with protection from unfair terms imposed by standard form contracts. From 12 November 2016, that protection was extended to include ‘small business contracts’.
A ‘small business contract’ is a contract for the supply of goods or services, or a sale or grant of an interest in land where:
- at the time of entering into the contract, at least one party employs 20 people or less; and
- the upfront price payable under the contract is not more than $300,000 or $1million if the contract is for more than 12 months.[5]
A term in a small business contract is ‘unfair’ if it would cause a ‘significant imbalance’ in the parties’ rights and obligations, is not reasonably necessary to protect the party that benefits from the term, and would cause detriment to the other party. An unfair term can be declared void and unenforceable.
Further changes to the ACL on the horizon
As the law presently stands, penalties cannot be imposed against a company for including or relying upon an unfair contract term in a small business contract. The Court can merely declare such terms to be void and not enforceable. This deficiency in the legislation has been acknowledged by the ACCC and the Government.
Speaking at the Council of Small Business Organisations of Australia in August last year, the ACCC Chairman, Rod Simms, raised concern at the fact that the ACCC is not able to seek civil pecuniary penalties or issue infringement notices against companies that include unfair terms in their small business contracts. Mr Sims made the point that without prompting by the ACCC, the ACL currently provides little incentive for companies to remove those terms.[6]
That concern was emphasised at a recent panel discussion in Perth[7] by ACCC Commissioner, Sarah Court. In Ms Court’s view, the absence of penalty provisions means the unfair contract terms protections in the ACL lack teeth, and provide very little deterrence against companies including unfair terms in standard form small business contracts.
The rationale of that concern is clearly demonstrated by the outcome of the Uber Eats investigation. Uber Eats has committed to begin implementing changes to its offending standard form contracts, and it says this will be completed by December 2019. That is no insignificant task as Uber Eats has contracts with thousands of restaurants in Australia. Uber Eats has also committed not to enforce the offending terms while those changes are completed. However, as stated above, no penalty has been or can be imposed on Uber Eats for its conduct.
As a result of these concerns, it is unsurprising that the ACCC has welcomed the Government’s commitment to consult on options to strengthen small business unfair contract term protections.[8] In addition to clarifying the ambiguity, uncertainty and practical difficulties created by the law as it currently stands, we expect changes to the ACL will almost certainly make unfair contract terms illegal and will attach civil penalties to breaches. The Government has also foreshadowed the possibility of significantly expanding the current definition of small business to mean a business that employs fewer than 100 persons at the time the contract was entered into or had an annual turnover less than $10 million.
Any such expansion of the unfair contract term protection regime and the ACCC’s regulatory powers will mean far more large businesses are likely to fall under the regulator’s scrutiny.
Footnotes
[1] Those protections previously applied only to individual consumers.
[2] ACCC, Uber Eats amends its contracts, 17 July 2019. That position was restated by Commissioner Sarah Court at the Australian Institute of Company Directors, Directors Briefing: Meet the Regulators (Perth, Australia) event on 22 July 2019.
[3] Further strengthening the unfair contract term protections for small businesses, Joint media release by the Hon Stuart Robert MP and Senator the Hon Michaelia Cash, 28 March 2019.
[4] ACCC, Uber Eats amends its contracts, 17 July 2019.
[5] ACL section 23(4).
[6] Mr Rod Sims, ACCC, Major changes needed to get rid of unfair contract terms, 31 August 2018.
[7] Australian Institute of Company Directors, Directors Briefing: Meet the Regulators (Perth, Australia) event on 22 July 2019.
[8] ACCC, Uber Eats amends its contracts, 17 July 2019.
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Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.
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