Effects test for small business makes a comeback and wins!

On Wednesday 16 March 2016, Prime Minister Malcolm Turnbull presented cabinet’s approval of the effects test for small business with Treasurer Scott Morrison and Small Business Minister Kelly O’Dywer.

The small business lobby was left shocked with cabinet’s decision to back the effects test.

The test has been left in the dark since 1977; however it finally gathered energy under the advocacy of former small business minister Bruce Billson.

After powerful coalition of big businesses campaigning against the test, it was said to never be seen again.

The Business Council of Australia argued that the test would hurt shoppers by increasing prices. The Australian National Retailers Association claimed it would lead to legal uncertainty and Woolworths boss, Grant O’Brien warned the test would send a “chill” through the economy.

Alternatively, small business welcomed the provision with open arms as it aimed to even out the playing field.

So what will the effects test do for small business in Australia?

Small business will benefit with legal reimbursements when big businesses exploit market power for the purpose or likely effect of significantly lessening competition.

This is a prevalent issue in Australia because there is a massive divide between small and large businesses in the market and the Australian Competition and Consumer Commission is struggling to protect the small business.

The problem is within the legislation.

The current wording of section 46 of the Competition and Consumer Act prohibits a corporation with substantial market power from taking advantage of that power for the purpose of eliminating or substantially damaging a competitor.

The blurred line lies within the words “taking advantage”.

Big business can carry out anti-competitive behaviour and be found lawful because there was no “taking advantage”.

However, since the Government’s approval of the effects test, Australia’s 2 million small businesses are no longer left in the dark.

Want to know what the effects test will do for your business? Please don’t hesitate to contact our experienced Newcastle commercial lawyers at Butlers Business and Law on (02) 4929 7002 or fill out an enquiry form on our website.