last updated 24/09/2019

Legal protections to affect small businesses – and franchising?

last updated 24/09/2019

24 September 2019 – Proposed changes to the Fair Trading Act would extend current consumer protections against unfair contract terms to apply to business contracts with a value below $250,000

Commerce and Consumer Affairs Minister Kris Faafoi and Minister for Small Business Stuart Nash have today announced new measures which aim to protect businesses and consumers from unfair commercial practices.

‘We know that unfair commercial practices are harming New Zealand businesses and consumers,’ Kris Faafoi said. ‘We’re taking action to prohibit the most serious types of commercial misconduct, and to ensure there are better protections against unfair contract terms,’ Mr Faafoi said.

The Government is proposing two key changes:

1. To prohibit conduct that is ‘unconscionable’ – this is serious misconduct that goes far beyond being commercially necessary or appropriate.

2. To extend current protections against unfair contract terms in standard form consumer contracts to apply to business contracts with a value below $250,000 as well.

‘There are existing laws that already prohibit unfair commercial practices, but the changes we’re making go further,’ Stuart Nash said. Mr Nash said some of the examples of misconduct that people provided during a recent consultation on the issue were particularly concerning.

‘We heard about a range of potentially unfair contract terms, including extended payment terms, one-sided contract terms, and businesses being locked-in to contracts for long periods of time. We also heard that some businesses aren’t complying with the terms of existing contracts, making excessive demands, and blacklisting and bullying their suppliers.'

Examples the Government has heard about include:

• Individuals being threatened, verbally abused and blacklisted after asking for payment
• Suppliers being made to pay compensation to retailers for perceived losses after they ran promotions with other retailers
• Contractors having the scope of their work increased unilaterally without consultation or compensation

‘Clearly, both small businesses and consumers are suffering because of poor commercial conduct, with negative effects on the economy. The measures the Government is taking will put a stop to this,’ said Minister Nash.

Mr Faafoi said the Government expected to introduce changes through a Fair Trading Amendment Bill by early next year.

‘This is part of other work underway to promote competition and protect people against unfair business practices. The new market study powers which the Commerce Commission is using to review the retail fuel sector is an example of the sort of work the Government’s doing in this space.’

‘We’re also strengthening laws to protect vulnerable consumers from loan sharks, looking at other ways to improve business-to-business payment practices, and reviewing the current law around misuse of market power such as predatory pricing,’ Minister Faafoi said.

While the examples given refer to general business, the fact that franchise agreements generally run for terms of 3-5 years or longer, and are required to give power to franchisors in order to protect the whole network (including other franchises) from rogue operators, could see franchising unintentionally drawn into the legislation. Read more about possible impacts here.

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