Taking the fight to SME bullies

The powers New South Wales is proposing for its Small Business Commissioner mean those routinely intimidating SMEs into subservient relationships will find the game has changed.

There’s a quiet, almost underground revolution happening in the business dispute resolution space that will have significant impact across Australian business. Big business and government organisations are about to discover a major new environment covering how they deal with small business. Few large companies or government organisations know what’s coming or are prepared.

It’s all to do with the development of the Small Business Commissioners across Australia.

The first SBC was created in Victoria in 2004. Its most important function has been a comparatively cheap and highly successful dispute mediation service for small business to big business/government disputes, although the powers don’t extend to enforced dispute settlement. The SBC isn’t a court.

Over the last 12 months and based on the Victorian model, similar SBCs have been created in Western Australia, South Australia and New South Wales. The South Australian Commissioner has beefed up mediation powers in that the Commissioner can require big business/government to produce documentation related to a dispute.

Last week the proposed powers for the New South Wales Commissioner were released, with invitations for comment and feedback. The proposals would provide the New South Wales SBC with heavy capacity to ‘encourage’ big business/government to resolve disputes with small business people without resorting to the courts.

If New South Wales adopts the proposed model it will be difficult for big firms or government departments to ignore the New South Wales SBC process. Like South Australia, the New South Wales Commissioner will be able to require a party to produce evidence related to a dispute. Further, the New South Wales Commissioner will be able to require a party to attend a mediation and answer questions. This still doesn’t mean a dispute will be forced into settlement, and parties will retain the right to litigate through the courts.

But the NSW Commissioner will have the power to join a litigation action in support of a small business or initiate litigation.

What this package of powers does, is to provide practical, institutional support lifting small business people out of a subservient contractual relationship with big business and government organisations.

The common problem facing small business when they do work for big business and government is that the small business people cannot assert their contractual rights because of lack of money. Governments and big business routinely win entirely because they can afford to conduct legal intimidation against the small party. I’ve recorded plenty of examples of this occurring including with finance brokers.

In many cases, the business model of large companies/government organisations is built around this tactic. They transfer risk and liability down the contract chain isolating themselves from risk. Consequently self employed, small business people routinely ‘get it in the neck’.

In this respect for small business people the rule of commercial law has little or no practical application. It’s a dysfunctional commercial environment. The commercial trust necessary for business activity is unsupported in the operation of the law. This limits wealth creation capacity and distribution at the base of society.

In the broad sense, this is what the small business commissioner model seeks to address. It started as an experiment in Victoria and proved successful. South Australia and now New South Wales are taking the model further.

There’s a fine balance being retained. Nothing is being done to take away the right of parties to go to court. But particularly in New South Wales, a large organisation that thinks it can win just through legal and financial intimidation will have to think twice. They will find themselves forced to confront a mediation process.

The New South Wales proposal is such that if mediation fails, nothing that occurs in the mediation can be used in court proceedings. Litigation will start with a clean slate. But a large organisation may find itself in court facing the Small Business Commissioner possessing equal legal and financial grunt combined with significant moral authority.

Given past experiences where some big businesses and law firms lobbied to stop unfair contract laws to protect consumers and small business people, I’d expect to see a similar campaign to stop this law in New South Wales. I’m anticipating battlelines being drawn and effort needed to support the New South Wales Small Business Commissioner powers.

What’s at stake is the building of a better business environment where the rule of commercial contract law has real practical application. This is not about casting assumptions that big business or big government is presumed bad. Or that small business people are all good. People are people. Most people are good and some behave badly.

The development of the Small Business Commissioners works towards addressing a dysfunctional operation of commercial law. The New South Wales proposed law is the most advanced model whilst retaining a fine balance. Big business and government organisations will need to review their strategies in New South Wales and beyond.

It should be expected that the other states will watch New South Wales with great interest. The probability of the stronger New South Wales model spreading to all the states is likely to be high. That would be a good thing for small business people and the quality of commercial activity in society.

Ken Phillips is executive director of Independent Contractors Australia and author of Independence and the Death of Employment.

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