Government plans to clamp down on unfair commercial practices well received

Commerce and Consumer Affairs Minister Kris Faafoi. Photo / File

Government plans to clamp down on unfair commercial practices that can cripple small businesses have been well received by those lobbying for change.

"We're taking action to prohibit the most serious types of commercial misconduct, and to ensure there are better protections against unfair contract terms," Commerce and Consumer Affairs Minister Kris Faafoi and Minister for Small Business Stuart Nash said in a joint statement.

The first change would prohibit conduct that is 'unconscionable' – serious misconduct that goes far beyond being commercially necessary or appropriate. The second would 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.

Examples of misconduct include individuals being threatened, verbally abused and blacklisted after asking for payment, and contractors having the scope of their work increased unilaterally without consultation or compensation, Faafoi and Nash said.

"There are existing laws that already prohibit unfair commercial practices, but the changes we're making go further," Nash said.

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

"It was exactly what I was hoping it would be. For a long time, I have said we really do need legislation and this is the beginnings of that," said Tenby Powell, who chaired the government's small business council.

Powell has long been lobbying the government to ensure that unfair commercial practices were addressed and said a key issue has been extended payment terms where small businesses were at the mercy of the pay schedule of larger firms.

"You know that cash flow is king for small businesses. The damage that's been done is phenomenal," said Powell.

According to Xero Small Business Insights - which provides a monthly snapshot of the small business sector - small businesses were getting paid 8.9 days late on average across the country in July.

New Zealand Food & Grocery Council chief executive Katherine Rich said the move was pro-business and would particularly benefit small food and grocery manufacturers.

"FGC submitted on the proposals in the government's discussion document and, like other submitters, provided examples of unfair conduct and contracts our members had experienced, and the impacts, such as negative cash flow, stress, business interruption, reduced profitability, and a reduced ability to focus on growing their business," she said.

Importantly, "these proposals don't undermine businesses' ability to compete, participate in robust negotiations, or enter into contracts," she said.

Road Transport Forum chief executive Nick Leggett said the changes would have a "profound impact on small transport companies that in some parts of the country are subject to unfair contract terms in the form of unilateral deferred payments."

According to Leggett, that was an "insidious practice used by some large corporates seeking to extend payment times to their suppliers beyond what is normally considered acceptable."

However, he was cautious about how effective the prohibition on unconscionable conduct would be for smaller businesses without the resources to pursue legal action.