When running a business you always want to be operating legally. If you stray outside the law you might find yourself out of pocket, out of business or worse! Unfair business practices are heavily penalised and prohibited by Australian Consumer Law. To make sure you are running your business fairly we have compiled five questions to ask yourself to make sure you are operating your business legally. 

This article will detail the five classic unfair business practices. It will also show you how to make sure you are not unintentionally engaging in them and let you know the potential consequences of practicing business unfairly.

1. Am I Promising A Benefit In Return For Information That Results In More Sales Or Customers? 

This is known as ‘referral selling’. Referral selling is where a customer buys your product. You (the business) then offer them a discount, extra product or other benefit if they give you information which results in more customers. 

The key aspect that distinguishes referral selling from offering benefits for a customer to refer their friends is that referral selling only offers the benefit if the friends referred buy the product. The original customer gaining the benefit is dependent on a future event taking place i.e. the friends buying the product. 

Example of referral selling 

John buys protein supplements from a health and welling being store called ‘Get Strong’. After he has purchased the protein supplements, Get Strong makes him an offer.

They say to John that if he gives them the email and phone number of five of his friends, and one of these friends buys from the store they will give him extra protein. 
Example of NOT referral selling

John buys protein supplements from a health and welling being store called ‘Get Healthy’. Get Healthy tells John that if he gives them the names and numbers of his five friends they will give him extra protein.

This deal is NOT dependent on his friends buying the product.

Under the Australian Consumer Law referral selling is an unfair business practice. There are substantial penalties for referral selling. 

  • For an individual: the maximum penalty is $500,000
  • For a company the penalties will be the larger of the below options
    • $10 million dollars
    • Three times the value of the benefit received
    • 10 x of annual turnover in the preceding year 

2. Is Your Business Dependent On Getting People To Sell Your Product? 

If so, your business may be classified as a pyramid scheme. Pyramid schemes are scams and are highly illegal. 

Pyramid schemes make money through recruitment of people, even though they may pose as selling a product. You will be offered a certain amount of money for recruiting more people to sell the particular product. This is known as a ‘recruitment payment’. People running a pyramid scheme will also be promised a certain amount of money for recruitment. 

Example of a Pyramid Scheme 
A friend approaches you and says they have a way to make guaranteed money fast. They offer to let you in on the deal. The business is selling rubber ducks. But there is an added benefit, every person you recruit to sell these rubber ducks you get a bonus. There is just a buy-in fee of $5,000. 

Further, unless you are at the top of the pyramid (e.g. the owner of the pyramid scheme)  you are unlikely to make that much as it is designed so that money trickles to the top. Regardless of whether you started the pyramid scheme or you are just participating in one, there are serious penalties. 

  • For an individual: the maximum penalty is $500,000
  • For a company the penalties will be the larger of the below options
    • $10 million
    • Three times the value of the benefit received
    • 10% of annual turnover in the preceding year 

3. Do My Contracts Provide Me With A Significant Amount Of Power Over My Consumers? 

If you answered yes to this question you may want to check if you are offering unfair contract terms. Usually, consumer contracts are contracts which your customers agree to when they sign up to the service you provide. These contracts usually set out the customers rights and obligations when using your service and your rights and obligations when providing this service. If you want a guide on setting out good business terms and conditions, we have one right here!

If you have a consumer contract however, the court may determine that some of the terms in this contract are unfair. To do so they will ask three questions: 

  • Does the term give you a significant amount of rights over the consumer or impose a significant amount of obligations on the consumer? 
  • Is the term necessary for the protection of the interests of you or the consumer? 
  • Does the term have the potential to cause detriment to the consumer? 

While these are questions for judges, it does give you an idea of what kind of terms will get you in trouble. Below are some examples of what has been determined as an unfair contract term in the past. Also, here is a more detailed account of unfair contract terms

  • You have the power to renew, cancel or change the contract but your consumer does not. 
  • The consumer under the contract can be held responsible for events or things outside of their control. 
  • The consumer cannot hold you or your business accountable to promises made before signing the contract. 
  • You may charge the consumer without notice or giving them a change for review.

If a contract term is determined unfair, the court will deem that it is no longer operable. If the contract cannot operate without this term, the entire contract may be deemed void. 

4. Am I Conducting Business In A Fashion That Could Be Morally Questionable? 

Morals are subjective and not everyone agrees on what is moral or immoral. However, if your business conduct could be considered immoral you want to be aware of the law surrounding unconscionable conduct

The definition of unconscionable conduct has been left purposefully vague. This is because Australian lawmakers want to make sure that businesses cannot get creative and take advantage of consumers or other businesses. 

Some examples of unconscionable conduct could be: 

  • Exploiting an advantage you have over a consumer 
  • Making a deal, in English, with someone who doesn’t speak English 
  • Removing the possibility of the consumer seeking advice or another perspective
  • Being overbearing or pressuring someone who is unsure

The penalties for unconscionable conduct are various. They can be enormous and depend entirely on the facts of the case. 

5. Am I Accepting Payment But Not Intending To Supply The Product Promised? 

Let’s hope that no one intentionally tries to do this as a reputable business owner. In any event, the key aspect of this unfair business practice is the intention. 

If you run into trouble while trying to supply the product which has already been paid for, you should take reasonable steps to remedy the situation. However, if you are intending to break the agreement you made from the get go, this is illegal. 

You may also face penalties if you promise a certain product and then, intentionally, supply a product which is very different. 

These penalties can vary depending on the circumstances. The possible penalties include: 

  • Providing a refund
  • Providing services or extra products
  • A court ordered compensation for any loss they find the customer faced as a result of your actions. 

Still Unsure? 

Operating a business legally is not always as straightforward as it sounds. If the above article or something else has triggered a concern Sprintlaw can help! Get in touch with us at team@sprintlaw.com.au or on 1800 730 617 for a free, no-obligations chat

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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