In October 2020 the Australian Competition and Consumer Commission (ACCC) lost a case that many expected it to win, and the loss says a lot about how unfair contract terms are actually decided. The regulator had sued Employsure, a workplace relations advice business, over standard form contracts that locked small business customers into multi-year terms, allowed the price to rise when a contract rolled over automatically, and demanded the full remaining balance if a customer stopped paying. Two years earlier, a court had already struck down one of those clauses as an unenforceable penalty in a dispute between Employsure and one of its customers. Yet when the ACCC ran the same style of clauses through the unfair contract terms rules in the Australian Consumer Law, the Federal Court found that none of the challenged terms were unfair. The case matters to any business that issues a standard form contract, because the rules have changed since 2020 and the cost of getting a clause wrong is now much higher.
How Employsure's contracts ended up in the Federal Court
Employsure was a specialist workplace relations advice business. For a subscription fee it gave small business owners advice on employment law matters such as awards, agreements and workplace disputes. Its customers signed standard form contracts, and those contracts carried the features that make subscription models work for the seller and bite for the buyer: a fixed multi-year term, no right for the customer to terminate early, automatic renewal from term to term, a power to increase the price when the contract rolled over, and a clause requiring payment of the full balance of the contract if the customer defaulted on instalments. The contracts the ACCC complained about were entered between 12 November 2016 and October 2018.
Before the ACCC became involved, one customer had already tested those terms and won. Zintix, a small business that had stopped paying for Employsure's services, was sued by Employsure in the Local Court and lost, then appealed. The Supreme Court of New South Wales held that the clause requiring payment of the remaining balance on default was a penalty: it was not a genuine pre-estimate of the loss Employsure would suffer, so it was unenforceable (Zintix (Australia) Pty Ltd v Employsure Pty Ltd [2018] NSWSC 924, judgment). That decision applied long-standing penalty doctrine, including O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359, the classic case on acceleration clauses that demand the whole of a remaining debt when a payment is missed.
The ACCC then took the fight up a level. It sued Employsure in the Federal Court over the standard form contracts used in the 2016 to 2018 period, alleging that three terms were unfair: the clause giving no right to early termination, the clause allowing a unilateral price increase on automatic renewal, and the payment default clause requiring the full balance. The ACCC also alleged misleading conduct about Employsure's supposed affiliation with government agencies, and unconscionable conduct. In Australian Competition and Consumer Commission v Employsure Pty Ltd [2020] FCA 1409 (judgment), Griffiths J dismissed the unfair contract terms claim in full: no unfair term was established. The ACCC did succeed on part of its misleading conduct case, and in November 2021 the Court ordered Employsure to pay a pecuniary penalty of $1 million in relation to six Google advertisements that conveyed a misleading impression of government affiliation (Australian Competition and Consumer Commission v Employsure Pty Ltd (No 2) [2021] FCA 1488, judgment).
Why the unfair contract terms claim failed
The legal question was a narrow one under ss 23 and 24 of the Australian Consumer Law (ACL), which is Schedule 2 of the Competition and Consumer Act 2010 (Cth) (Act). A term of a standard form small business contract is unfair if three things are all present: it would cause a significant imbalance in the parties' rights and obligations under the contract; it is not reasonably necessary to protect the legitimate interests of the party who is advantaged by it; and it would cause detriment, financial or otherwise, if it were applied or relied on. A court must also weigh how transparent the term is and consider the contract as a whole. The critical detail is in s 24(4): a term is presumed not to be reasonably necessary to protect the advantaged party's legitimate interests unless that party proves otherwise. The burden of justification sits with the business that drafted the contract, not with the regulator challenging it.
That presumption is where Employsure won. The Court accepted evidence from Employsure's managing director and its finance director explaining the commercial logic of the challenged terms. As a young business, Employsure had uncertain revenue flow and its subscription model depended on predictable customer commitments. It incurred significant upfront costs in acquiring and servicing each customer, so early termination created genuine and identifiable cost. And receiving the full balance of the contract on default did not necessarily mean the contract was profitable for Employsure overall. Griffiths J accepted that evidence as a legitimate commercial justification for terms that were, on their face, entirely one-sided. The payment default clause drew the closest scrutiny: Employsure conceded that the term operated entirely in its favour and was not reciprocal. Even so, the Court found it balanced, because the obligation to pay only arose on the customer's own default, the clause was clearly disclosed in the contract, and the customer could avoid the payment simply by honouring the agreement. That reasoning echoes the High Court's approach in Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525, which treated fees that are disclosed and avoidable differently from fees that are hidden or unavoidable.
The transferable lesson is not that one-sided terms are safe. It is that the reasonably necessary limb decides these cases, and it is decided on evidence rather than on how a clause looks in the abstract. Employsure prevailed because it could point to its cost structure and revenue model, and because its witnesses survived cross-examination. A business that cannot explain, in financial terms a court will accept, why it needs a one-sided term starts from a presumption against it and will usually lose.
What this case means for your standard form contracts
The case points to five practical takeaways for any business that issues a standard form contract:
- The reasonably necessary test is where unfair contract terms cases are won and lost: under s 24(4) a one-sided term is presumed not to be reasonably necessary, so the burden of justification rests on your business, not on the regulator.
- A clause can favour you completely and still be fair: Employsure's payment default clause was admitted to be entirely one-sided yet survived, because it was disclosed, could be avoided by the customer, and only operated on the customer's default.
- The penalty doctrine is a separate weapon your customers can use: a term can survive an unfair contract terms challenge yet still be struck down as a penalty if it is not a genuine pre-estimate of loss, exactly as happened to Employsure in the Zintix case.
- The regulator lost here but is still watching this market: the ACCC pursued Employsure for years, succeeded on related misleading conduct allegations, and obtained a $1 million penalty, so standard form contracts in subscription-style industries remain in its sights.
- The stakes changed in November 2023: proposing, using or relying on an unfair term in a standard form contract is now itself a contravention that attracts a pecuniary penalty, so a term that is merely void is no longer the worst possible outcome.
Since 9 November 2023 the consequences of getting this wrong are substantially heavier. The ACCC spent the months before that date urging businesses to remove unfair terms from their standard form contracts before the new penalty provisions took effect, and the regime now reaches further than it did when Employsure's contracts were made. A small business contract for these purposes is now one where at least one party employs fewer than 100 people or has an annual turnover under $10 million, under the current s 23(4) of the ACL. The maximum penalty for a corporation is the greater of $100 million, three times the value of the benefit obtained from the contravention, or 30% of adjusted turnover, with penalties of up to $2.5 million for individuals, under s 224 of the ACL. In 2020 an unfair term was simply void. Today, putting one into a standard form contract is an offence-like contravention with consequences measured in the tens of millions.
There are concrete things you can change this week:
- Audit every standard form contract against the three limbs of s 24: identify each term that creates a significant imbalance in your favour, and for every one of them write down the commercial reason it exists, because the presumption in s 24(4) means you will have to prove that reason if challenged.
- Build an evidence file for each one-sided term: Employsure won on credible witness evidence about its cost structure, subscription model and revenue uncertainty, so keep the records that show what early termination or non-renewal genuinely costs your business.
- Redraft automatic renewal clauses to give the customer notice and a real exit: automatic rollover combined with a unilateral price increase was one of the exact combinations the ACCC targeted in this case, and the Court's acceptance of it rested on the specific evidence Employsure led.
- Test every early termination fee against the penalty doctrine: if the amount you charge is not a genuine pre-estimate of your loss, it is unenforceable as a penalty, as Employsure discovered in Zintix, even if an unfair contract terms challenge against it would fail.
- Schedule the audit to repeat: whether a term is reasonably necessary is assessed in light of the business's circumstances, so a justification that holds today may not survive a change in your pricing model or cost base.
How a lawyer helps you get your contracts in order before the regulator does
The ACCC v Employsure case shows how much of this area turns on preparation that a business cannot easily do on its own. A legal practitioner will run each clause of your standard form contract through the s 24 checklist and identify which terms carry the risk, and will not stop at the obvious candidates such as termination fees and automatic renewal provisions. They will test early termination and acceleration clauses against the penalty doctrine and advise on whether your figures can be defended as a genuine pre-estimate of loss. They will look at the drafting mechanics that the Court found persuasive in Employsure, such as disclosure, notice periods and whether a customer can avoid the cost by complying with the contract, and they will help you redraft so the terms are transparent and justified on their face.
The other part of the work is evidentiary, and that is where an unfair contract terms challenge is usually won or lost. A practitioner will help you assemble the evidence that makes the reasonably necessary case: the cost of acquisition, the revenue model, the way early termination distorts your cash flow, and the records that support each assertion. That evidence file is what rebuts the presumption in s 24(4). And if the ACCC does come knocking, whether through an information request, a compliance review or a court application, having a lawyer who knows the ACL and the penalty cases will make the difference between a negotiated outcome and a judgment against you. If you would like a review of your standard form contracts, contact Artificer Legal for a confidential discussion about where the risk sits and what to do about it.
Why a one-sided term can still be fair
The surprising part of this case is that fairness, for the purposes of the ACL, is not about whether a term favours you. It is about whether you can prove that the term is reasonably necessary to protect your legitimate interests. Employsure proved it with credible evidence about its cost structure and revenue model, and it walked away with every challenged term intact, including one it admitted operated entirely in its favour. A business without that evidence is exposed, and since November 2023 the exposure carries penalties of up to $100 million for a corporation. The clause you cannot justify is the clause you should not keep.
This article has looked at the ACCC's failed unfair contract terms case against Employsure, the earlier Zintix decision that struck down a similar clause as a penalty, and the three-part test in s 24 of the ACL, including the presumption that a one-sided term is not reasonably necessary until the advantaged party proves otherwise. It has also covered the reasons Employsure's terms survived, the $1 million penalty the company paid on the related misleading conduct claims, and the changes that took effect in November 2023 making unfair terms in standard form contracts a penalty-attracting contravention. The practical message for your business is to audit your standard form contracts, document the commercial justification for each one-sided term, and check your termination and renewal clauses against both the unfair contract terms rules and the penalty doctrine, with legal assistance where the drafting and evidence need to be defensible.