Content reviewed and verified by Graham Chee, with FCPA-led practice at Local Knowledge, Mascot NSW. Continuous CPA Australia member since 1986. Prior career at Goldman Sachs, BNP Investment Management and Merrill Lynch.. Last reviewed July 2026. Next review scheduled for October 2026.
TL;DR
Future-proof your business: Understand the expanded Unfair Contract Terms regime and protect your contractor agreements.
Introduction: The Evolving Landscape of Contractor Engagements in Australia
For Australian businesses engaging independent contractors, 2025 marks a significant shift in regulatory oversight. The traditional focus on tax status, while still critical, is now augmented by sweeping changes to contract enforceability. The 'Closing Loopholes' Act, alongside amendments to the Australian Consumer Law (ACL), extends Unfair Contract Terms (UCT) protections to a broader cohort of independent contractors, fundamentally reshaping how these agreements are drafted, reviewed, and upheld. This regulatory intersection demands a proactive and sophisticated approach to compliance, moving beyond simple ABN verification to a forensic examination of contractual clauses. Graham Chee, FCPA, GRCP, principal of Local Knowledge, writes from a practice that pairs FCPA-grade compliance with Goldman Sachs, BNP Investment Management and Merrill Lynch institutional experience on Regulatory intersection of the 'Closing Loopholes' Act and Australian Consumer Law for independent contractors. This article provides a critical audit perspective for businesses and contractors alike, dissecting the implications of these changes and offering actionable insights to mitigate risk and ensure legal robustness in your agreements. We will move beyond the conventional ATO 'tests' to focus squarely on the legal enforceability of contracts under these new protections, equipping you with the knowledge to navigate this complex terrain.
The New Frontier: Unfair Contract Terms (UCT) Expansion for Contractors
The landscape of contract law in Australia has undergone a profound transformation, particularly concerning small business contracts. Effective November 2023, and with enforcement intensifying into 2025, the Unfair Contract Terms (UCT) regime under the Australian Consumer Law (ACL) has been significantly strengthened. Previously, UCT protections applied to 'small business contracts' where one party had fewer than 20 employees and the upfront price payable was below certain thresholds. The 'Closing Loopholes' Act has abolished the employee headcount and upfront price thresholds, vastly expanding the scope of protection. Now, a contract is considered a 'small business contract' if at least one party employs fewer than 100 people OR has an annual turnover of less than $10 million in the previous financial year [ACCC: Unfair contract terms law]. This means a vastly larger number of independent contractor agreements, previously outside the UCT regime, are now subject to scrutiny. Critically, the amendments introduce civil penalties for proposing, applying, or relying on an unfair contract term, escalating the compliance stakes significantly. Businesses must now undertake a comprehensive review of all standard form contracts, including those with independent contractors, to identify and remediate potentially unfair clauses. The focus is no longer just on tax status, but on the fundamental fairness and enforceability of the contractual terms themselves.
Decoding the 'Closing Loopholes' Act: Beyond Employment Status
The 'Closing Loopholes' Act (formally, the Fair Work Legislation Amendment (Closing Loopholes) Act 2023) introduces several key changes that impact independent contractors, extending beyond the traditional employment vs. independent contractor dichotomy. While some aspects directly address the definition of employment, other provisions, particularly those related to the UCT regime, have broader implications for all contractor engagements. The Act empowers the Fair Work Commission (FWC) to deal with 'unfair' terms in services contracts for independent contractors who are considered 'employee-like', even if they are not employees in the traditional sense [Fair Work Commission: Independent contractors]. This introduces a new layer of complexity, where certain contractors may gain access to FWC dispute resolution mechanisms previously reserved for employees. For businesses, this means that even if a contractor clearly meets the ATO's criteria for an independent contractor (e.g., ABN, control over work, risk), their contract can still be challenged at the FWC on grounds of unfairness. This necessitates a dual-lens approach: ensuring the contractor relationship is genuinely independent for tax and superannuation purposes [ATO: Employee or contractor], AND ensuring the contract itself is fair and reasonable under the expanded UCT provisions and potential FWC oversight. The days of simply relying on a 'contractor' label are over; the substance and equity of the agreement are now paramount.
Identifying Unfair Clauses: A 2025 CPA Contract Audit Checklist
A robust 2025 CPA risk audit for contractor agreements must go beyond a superficial review. The focus is on identifying terms that create a significant imbalance in the parties' rights and obligations, are not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term, and would cause detriment (financial or otherwise) if applied or relied upon [ACCC: Unfair contract terms law]. Here's a checklist for identifying potentially unfair terms:
Risk Mitigation for Businesses Engaging Contractors: Proactive Steps
Empowering Independent Contractors: Your Rights & Contract Review
Independent contractors now have significantly enhanced protections under Australian law. It's no longer sufficient to simply accept a contract presented to you; understanding your rights and scrutinising terms is paramount. The expanded UCT regime means that even if you're a sole trader, your standard form contract with a larger entity may be subject to review for fairness [ACCC: Small business rights]. Furthermore, the 'Closing Loopholes' Act introduces pathways for 'employee-like' contractors to challenge unfair terms or seek dispute resolution via the Fair Work Commission. This represents a substantial shift, providing a potential avenue for redress that was previously unavailable. Contractors should consider the following steps:
Graham Chee, FCPA: Expert Insights on 2025 Compliance
The regulatory changes coming into full effect in 2025 are not merely an administrative hurdle; they represent a fundamental re-evaluation of commercial fairness in Australia. As an FCPA-led practice, Local Knowledge is seeing a significant uptick in requests for contract reviews and compliance audits. Businesses that ignore these changes risk not only financial penalties but also reputational damage and protracted legal disputes. For contractors, this is an empowering moment, offering a new level of protection against exploitative practices. The key takeaway for both parties is transparency and equity. A well-drafted contract, born from genuine negotiation and adhering to the spirit of fairness, will be the cornerstone of resilient business relationships in the coming years. This is where the strategic input of a qualified accountant, particularly one with a GRCP designation, becomes invaluable – translating complex legal frameworks into practical, auditable business processes. We focus on getting your tax right, and now, getting your contracts right is an integral part of that.
Frequently Asked Questions
Q.What specifically changed with the Unfair Contract Terms (UCT) law for contractors?
The key changes, effective from November 2023, significantly expanded the scope of the UCT regime. Previously, 'small business contracts' were defined by specific employee headcount and upfront price thresholds. These thresholds have been removed. Now, a contract is considered a 'small business contract' if at least one party employs fewer than 100 people OR has an annual turnover of less than $10 million in the previous financial year. This broadens the protection to many more independent contractors who enter into standard form contracts. Additionally, civil penalties can now be imposed for proposing, applying, or relying on an unfair contract term [ACCC: Unfair contract terms law].
Q.How does the 'Closing Loopholes' Act affect independent contractors?
The 'Closing Loopholes' Act introduces several provisions impacting independent contractors. Notably, it empowers the Fair Work Commission (FWC) to deal with 'unfair' terms in services contracts for independent contractors deemed 'employee-like'. This means that even if a contractor is not a traditional employee, they may gain access to FWC dispute resolution mechanisms. The Act also includes provisions that aim to clarify the definition of employment, potentially shifting some contractor relationships to employment. Businesses must consider both the UCT regime and the FWC's expanded jurisdiction when engaging contractors [Fair Work Commission: Independent contractors].
Q.Can an independent contractor's contract be deemed 'unfair' even if they have an ABN and are clearly not an employee?
Yes, absolutely. The Unfair Contract Terms (UCT) regime operates independently of the employment versus independent contractor status. Even if a contractor clearly meets the ATO's criteria for being an independent contractor for tax purposes [ATO: Employee or contractor], the terms within their service agreement can still be challenged as unfair under the Australian Consumer Law. The focus of the UCT regime is on the fairness and balance of the contractual clauses themselves, not solely on the nature of the working relationship. The 'Closing Loopholes' Act further solidifies this by allowing 'employee-like' contractors to challenge terms at the FWC.
Q.What are common examples of unfair terms in contractor agreements?
Common examples of potentially unfair terms include clauses that allow one party (usually the business) to unilaterally vary the contract's key terms (like scope or price) without reasonable notice or mutual consent. Other examples include one-sided termination clauses, excessive indemnity requirements placed on the contractor, broad and unreasonable restraint of trade clauses, or clauses that disproportionately limit the business's liability while imposing extensive liability on the contractor. Any term that creates a significant imbalance in rights and obligations and is not reasonably necessary to protect legitimate interests could be deemed unfair [ACCC: Unfair contract terms law].
Q.What should businesses do to comply with these new regulations by 2025?
Businesses should undertake a comprehensive audit of all their standard form independent contractor agreements. This audit should identify and assess any potentially unfair contract terms against the expanded UCT regime criteria. It is crucial to review clauses related to variation, termination, indemnities, liability, payment, and intellectual property. Businesses should also implement robust internal policies for contractor engagement, provide training to relevant staff, and consider seeking legal and accounting advice to ensure their contracts are fair, transparent, and legally defensible. Proactive amendment of non-compliant terms is essential to mitigate the risk of penalties [ACCC: Small business rights].
Secure Your Contractor Agreements: A 2025 Compliance Check
The evolving regulatory landscape demands meticulous attention to detail in your contractor agreements. Don't leave your business exposed to penalties or disputes. A proactive audit of your contracts is not just good practice; it's essential for 2025 compliance. Ensure your agreements are robust, fair, and legally sound under the expanded Unfair Contract Terms regime and the 'Closing Loopholes' Act. Speak with our principal, Graham Chee, FCPA, for expert guidance tailored to your specific business needs.
About the Author
Graham Chee, FCPA, CPA, GRCP, GRCA
Principal and Founder, Local Knowledge
Graham Chee is the principal and founder of Local Knowledge, an FCPA-led Australian practice that brings institutional-grade compliance, investment-structure and intellectual-property experience directly to owner-managed businesses. Graham is a Fellow of CPA Australia (FCPA since November 2005, continuous CPA member since 1986) and holds the OCEG Governance, Risk & Compliance Professional (GRCP) and Governance, Risk & Compliance Auditor (GRCA) designations. His prior career includes senior roles at Goldman Sachs, BNP Investment Management and Merrill Lynch. Graham was previously portfolio manager of the Asian Masters Fund (IPO December 2007 – 31 December 2009), which returned +29% in AUD terms versus the MSCI Asia Pacific (ex Japan) benchmark. He signs off on 100% of client files personally.
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This article provides general information only and does not constitute financial, legal, or accounting advice. Speak to us for advice specific to your situation. Every file is signed off by our principal under CPA Code of Ethics and APES 110.
Graham Chee FCPA, CPA, GRCP, GRCA · Principal, Local Knowledge · Mascot NSW · CPA-signed files