Unfair contract terms in Australia: what businesses need to check

What changed, and when

Before November 2023, an unfair term in a standard form contract was voidable. A court could strike it out, and that was broadly the end of it. There was no financial penalty for having written it.

From 9 November 2023, that changed. Proposing, applying or relying on an unfair term in a standard form contract with a consumer or a small business became unlawful under the Australian Consumer Law, and it attracts civil penalties.

On 28 March 2026 the penalties doubled. Under the Treasury Laws Amendment (Doubling Penalties for ACCC Enforcement) Act 2026, the maximum penalty for a corporation is now the greatest of $100 million, three times the benefit obtained from the conduct, or 30 percent of adjusted turnover for the period the breach occurred.

The practical shift is that unfair terms are now a compliance exposure for the business issuing the contract, not just a clause the other side might one day challenge.

Who is covered

The protections apply to standard form contracts with consumers and with small businesses.

For the small business limb, a business qualifies if it employs fewer than 100 people, or has an annual turnover of under $10 million. This is a wider net than the earlier threshold, which turned on 20 employees and a contract value cap.

A standard form contract is one offered on a take it or leave it basis, prepared by one party and presented without a real opportunity to negotiate. If it is alleged in proceedings that a contract is standard form, it is presumed to be standard form unless the other party proves otherwise. That reversed onus matters, because it means the business that wrote the contract carries the burden.

The three-part test

A term is unfair only if all three limbs are satisfied. Failing one is enough to take a term outside the regime.

Significant imbalance

The term would cause a significant imbalance in the parties' rights and obligations under the contract.

Not reasonably necessary

The term is not reasonably necessary to protect the legitimate interests of the party it advantages. The party relying on the term is the one who has to make that case.

Detriment

The term would cause detriment, financial or otherwise, to a party if it were applied or relied on.

Clauses that most often get caught

The legislation includes examples of terms that may be unfair. These are the ones that turn up most often in ordinary supplier contracts.

One-sided variation rights

The supplier can change the price, the service or the terms during the contract, and you cannot.

One-sided termination rights

The supplier can walk away when it suits them, while you are locked in for the full term.

Automatic renewal without meaningful notice

The contract rolls over unless you cancel, and the window to cancel is short or is never drawn to your attention.

Asymmetric liability

The supplier's liability is tightly capped or excluded while yours is uncapped, with no corresponding justification.

One-way indemnities

You indemnify the supplier broadly, including for matters within their control, and nothing runs the other way.

Unilateral determination

The supplier alone decides whether the contract has been breached, or whether their own performance was adequate.

A practical way to review

Read each clause twice, once as yourself and once as the other side. If a right exists in one direction but not the other, note it. Asymmetry on its own is not unfairness, but it is where unfairness tends to live.

Then ask what the clause is protecting. A supplier capping liability at the fees you have paid them is protecting a legitimate commercial interest. A supplier reserving the right to change the price mid-term without giving you an exit is harder to justify on the same footing.

Most contracts have five to twelve clauses worth a second look. The rest is standard and can be left alone.

Common questions

Are unfair contract terms illegal in Australia?

Since 9 November 2023, proposing, applying or relying on an unfair term in a standard form contract with a consumer or small business is unlawful under the Australian Consumer Law and attracts civil penalties. Before that date such terms were voidable but carried no penalty.

What is the maximum penalty for an unfair contract term?

From 28 March 2026 the maximum penalty for a corporation is the greatest of $100 million, three times the benefit obtained from the conduct, or 30 percent of adjusted turnover during the breach period. This doubled the previous $100 million first limb from $50 million.

Which businesses are protected as small businesses?

A business qualifies if it employs fewer than 100 people or has an annual turnover of under $10 million. Only one of the two needs to be met.

What counts as a standard form contract?

A contract prepared by one party and offered on a take it or leave it basis, without a real opportunity to negotiate. If it is alleged to be standard form in proceedings, it is presumed to be so unless the other party proves otherwise.