Referral Selling Explained: Australian Business Compliance Guide

Referral marketing can be a powerful growth channel. Happy customers recommending your product or service is often the most persuasive “ad” you’ll ever run.

But there’s a catch in Australia: “referral selling” as defined under the Australian Consumer Law is illegal.

If you want to run a “refer a friend” program or offer rebates, credits or commissions to customers who spread the word, it’s crucial to structure it the right way. In this guide, we’ll unpack what referral selling is, when it’s unlawful, and how you can design a compliant referral program that builds your brand without breaking the rules.

What Is Referral Selling In Australia?

Under the Australian Consumer Law (ACL), “referral selling” is a specific kind of sales tactic where a business promises a rebate, commission or other benefit to a customer in exchange for providing the names of other prospective customers or otherwise helping the business get more sales - but the benefit is contingent on an event happening after the initial sale (for example, those referred people later buying something).

In simple terms, if you entice someone to buy by saying “you’ll get $X back if three friends you refer also buy,” that’s likely unlawful referral selling.

Why is it a problem? Because it can pressure consumers into buying based on the prospect of future benefits they can’t control. That’s why the ACL prohibits it.

Is Referral Selling Legal Under The Australian Consumer Law?

No - not when it matches the ACL definition above. The prohibition targets situations where the promise of a benefit is used to induce a purchase, but the benefit depends on future events, such as other people buying later.

However, not every referral-style incentive is unlawful. You can offer genuine, unconditional benefits that don’t depend on what other people do later. A few guiding principles:

• Don’t make the benefit contingent on a future event outside the customer’s control (like a friend making a purchase).
• Avoid making the incentive a factor in the decision to purchase if the benefit will only be provided later and only if others buy.
• Ensure your promotions are clear, truthful and not misleading. This sits alongside the general ban on misleading or deceptive conduct under section 18 of the ACL.

It’s also important your advertising about any referral initiative doesn’t overstate the likelihood or size of benefits, which can raise issues under misrepresentation rules and general consumer protections.

What’s The Difference Between Referral Programs, MLM And Pyramid Schemes?

These terms are often confused, so let’s separate them:

• Unlawful referral selling (ACL): A promise of a benefit to a purchaser for providing referrals or helping make sales, where the benefit depends on future events after the initial sale (e.g., others buying).
• Compliant customer referral initiatives: Programs that give customers a benefit that is not dependent on third parties making purchases later (for example, a discount applied at checkout with no future conditions).
• Multi-level marketing (MLM): A distribution model that can be legitimate if it complies with the law, but watch for structures or claims that edge into pyramid selling. Pyramid schemes are illegal.

If you’re considering any model where benefits depend on recruiting others or their purchases, get specific legal guidance before launch. In many cases, a simpler, compliant referral reward that’s not contingent on third-party purchases will be the safer (and clearer) path.

How To Run A Compliant Referral Program (Step-By-Step)

You can absolutely encourage word-of-mouth without breaching the ACL. Here’s a practical path to design a lawful, straightforward referral initiative.

1) Set Your Goal And Choose A Simple Benefit

Start by deciding what behaviour you want to reward. Do you want more reviews, social shares, newsletter signups, or repeat purchases?

Then choose a benefit that’s not dependent on future third-party purchases. For example:

• A discount applied immediately to the referrer’s transaction.
• A fixed-value voucher the referrer receives straight away (not contingent on others buying later).
• A loyalty points boost credited on the spot.

Keep the benefit timing clear: “you get X now,” not “you might get X later if friends buy.”

2) Avoid Contingent Triggers

Don’t structure rewards so the customer only gets them if their friends later purchase, sign a contract, or spend a minimum amount. That kind of contingency is what pushes a program into unlawful referral selling territory.

3) Be Clear, Accurate And Upfront In Your Ads

Any claims about rewards must be precise, easy to understand and not misleading. That aligns with your obligations under the ACL’s general fairness rules, including section 18 on misleading or deceptive conduct.

4) Put Terms And Conditions In Writing

Create written terms for the program that spell out eligibility, timing, caps, exclusions and how benefits are delivered. Publish these where customers can easily find them before they participate.

5) Train Your Team

Make sure staff understand what they can and cannot say. Train them to avoid any promise that a customer will receive benefits later if they provide names or if other people buy in the future.

6) Sense-Check Your Customer Journey

Walk through your process as if you were a customer. Are you nudging people during checkout with any claims that imply a future, conditional pay-off? If so, rework that prompt so any benefit is immediate, unconditional and clearly explained.

What Laws Do You Need To Follow When Marketing Referrals?

Beyond the specific prohibition on referral selling, a compliant program should tick the boxes below.

Australian Consumer Law (ACL)

• Don’t use referral selling as an inducement to purchase (the unlawful conduct described above).
• Ensure your program messaging isn’t misleading or deceptive under section 18 of the ACL.

Unsolicited Sales And Door-To-Door Rules

If your sales process involves approaching consumers without an invitation (by phone or in person), you may trigger the “unsolicited consumer agreements” regime. If that happens, there are strict rules on disclosure, cooling-off and timing. Have a look at an Unsolicited Consumer Agreement framework if your channel includes doorknocking or outbound selling to consumers.

Telemarketing And Do Not Call

If you use phone calls or SMS to promote your program, you’ll need to comply with Australia’s telemarketing rules, including prohibited calling times and the Do Not Call Register requirements. Get across the basics of telemarketing laws before you dial.

Email And Digital Marketing

Referral programs often rely on invitations or discount codes sent by email. Ensure you have valid consent and are meeting Australia’s anti-spam rules. Our overview of email marketing laws covers practical compliance tips for consent, identity and unsubscribe requirements.

Privacy And Data Handling

If you collect any personal information (like names or email addresses) to administer your referral program, you should have a clear, accessible Privacy Policy that explains what you collect, why, and how you use it. Keep data collection to the minimum necessary, and never tell customers to upload their friends’ contact details without consent.

Website And App Disclosures

If your program runs online, your platform should set out rules for participation and acceptable use. Your Website Terms and Conditions can help allocate risk, explain how codes or credits work, and set boundaries around user conduct.

Competitions And Games Of Chance/Skill

Running a giveaway or leaderboard as part of your referral initiative? Make sure you have clear Competition Terms & Conditions, and check whether state permits are required for your specific promotion format. Keep mechanics fair, transparent and consistent with consumer law.

What Legal Documents Should You Have In Place?

The right documents make your program predictable and help you avoid disputes. Not every business will need everything listed below, but most referral initiatives benefit from several of these:

• Referral Program Terms & Conditions: Sets out eligibility, how rewards are earned and delivered, timing, caps, exclusions, and how you handle errors or abuse.
• Website Terms And Conditions: If your program runs on your site or app, these rules govern participation and user conduct, linking with your Website Terms and Conditions.
• Privacy Policy: Explains how you collect, use and store personal information involved in your referral program. Link it wherever you collect data. You can base this on your core Privacy Policy.
• Competition Terms & Conditions: If the referral mechanic includes a prize draw, instant wins or leaderboards, use clear Competition Terms & Conditions and check licensing rules in relevant states and territories.
• Marketing Compliance Checklist: An internal checklist to ensure every email, SMS or landing page complies with email marketing laws and any relevant telemarketing laws.
• Unsolicited Sales Procedures: If your sales channel ever becomes unsolicited (e.g., doorknocking, outbound calls to consumers), align your scripts and contracts with the Unsolicited Consumer Agreement regime.

These documents work together. For example, your marketing claims should match your referral T&Cs, which in turn should align with your website terms and privacy disclosures. A mismatch between any of them can create compliance risk.

Practical Examples: What’s Likely OK Vs What’s Risky?

To make this concrete, here are simplified scenarios that illustrate the line between a clean referral incentive and unlawful referral selling.

• Likely OK: “Get $10 off your purchase today when you enter a referrer code.” The discount is immediate and not contingent on anyone else buying later.
• Likely OK: “Share your unique link. You’ll receive a $20 store credit today for posting your link - regardless of whether anyone purchases.” There’s no contingency on third-party purchases.
• Risky/Unlawful: “Buy now and get $50 back if three people you refer buy within 60 days.” This is a classic example of referral selling prohibited under the ACL - the promised benefit is conditional on future purchases by others.
• Risky/Unlawful: “Provide five friends’ contact details and you’ll get $100 when two of them sign up.” The benefit is contingent on third-party actions post-purchase/referral.

If in doubt, reframe your incentive so the benefit is immediate and under the participant’s control, or speak with a consumer law expert to review your concept before you go live.

Governance Tips To Keep Your Program On Track

• Map the lifecycle: From ad to reward delivery, document every step. Wherever there’s a promise, confirm it can be delivered unconditionally and promptly.
• Keep claims conservative: Avoid language that implies guaranteed earnings or outsized benefits, which can be misleading.
• Minimise data: Don’t ask people to upload their friends’ contact details. If you do allow invitations, rely on the participant’s own email client or shareable links rather than collecting others’ personal information.
• Audit regularly: Periodically review your T&Cs, landing pages and scripts to stay aligned with the ACL and your internal policies.
• Have a complaints path: Make it easy to raise issues, and resolve them promptly and fairly. This supports compliance and builds trust.

Key Takeaways

• Referral selling is unlawful in Australia when a customer is promised a benefit for providing referrals or assisting sales and that benefit depends on future events, like others buying later.
• You can still run effective referral initiatives - keep rewards immediate, unconditional and clearly explained, without tying them to other people’s future purchases.
• Your program must also comply with broader rules across consumer law, privacy, email marketing, telemarketing and (if relevant) the unsolicited consumer agreement regime.
• Lock in clear referral T&Cs, a transparent Privacy Policy and suitable Website Terms and Conditions, and align your marketing with what your terms actually promise.
• When your referral mechanic resembles MLM or includes conditional rewards based on others’ purchases, pause and get tailored advice - redesigning early is far cheaper than fixing a compliance breach later.

If you’d like a consultation on structuring a compliant referral program for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.