If you are a small business that sells goods or services, you must be aware of how the Australian Consumer Law (ACL) applies to you and your customers. The ACL gives additional protections to customers on top of any rights under a typical contract. This article explains when the ACL applies and three important protections you need to know as a business.

When Does the ACL Apply to Your Business?

The ACL will apply when you and your customer form a consumer contract. A consumer contract is an agreement made between a business and a customer.

However, the ACL defines businesses and consumers quite narrowly, so not every business or customer who buys a good or service will form a consumer contract. Instead, a consumer contract is formed when the business is engaged in ‘trade or commerce’ with ‘consumers’ as defined under the ACL.  

When Are You Engaged In Trade or Commerce?

As a general rule, companies engage in trade and commerce if they sell goods or services to the public at large as part of an established company.

For example, if you sell goods as part of a supermarket chain or run a fitness studio that hosts Zumba classes, you would be engaged in trade or commerce.

Trade or commerce does not extend to private sales.

For example, if your friend buys a bicycle directly from you in a garage sale, the ACL will not apply.

However, the line between business and private sales can get fuzzy when it comes to online sales. If you are selling a small number of goods via a digital platform, such as eBay or Gumtree, it would be a private transaction. However, if you operate with an Australian Business Number (ABN) or you sell lots of products over many months, a court may decide the ACL applies to you.

When Does the ACL Apply to Your Customers?

The ACL will apply to your customers if they buy goods or services that are either priced:

  • at less than $40,000; or
  • above $40,000 when the good or service is used for personal, domestic or household consumption.

For example, if your customer buys a $50,000 vehicle for the family, the ACL applies. In contrast, if they spent $30,000 arranging buses for a business event, the ACL will not apply to that purchase.

Protections Under the ACL

The ACL provides various protections for your customers. However, three of the most important ones you need to know as a business include:

  1. consumer rights and guarantees;
  2. protection from unfair contract terms; and
  3. protection against misleading and deceptive behaviour.  

1. Consumer Guarantees

The ACL’s consumer guarantees are a set of automatic rights provided to customers and some businesses for any goods or services, including any goods or services imported in Australia. Some guarantees under the ACL include goods that:

  • are of acceptable quality;
  • are reasonably fit for purpose; and
  • do match the description provided.

If you supply a service, you must comply with guarantees that your services are:

  • delivered with due care and skill;
  • fit for the described purpose; and
  • delivered within a reasonable timeframe.

If you breach any of those guarantees, your customers can seek remedies from you. These remedies depend if the breach is classified as minor or major failures.

A major failure includes goods or services that are substantially not fit for the purpose, unsafe for the customer or otherwise very different from what was described. A minor failure is anything that is not a major failure, which would be otherwise easy to repair, replace, refund or fix.  

If it is a minor failure, you can:

  • repair, replace or refund goods; or
  • either fix the problem free of charge and within a reasonable time or offer a refund if you are offering a service.  

If the major failure affects your goods, your customers can request:

  • a refund or replacement of the product, not just a repair; or
  • compensation.

If the major failure affects your services, your customers can:

  • cancel the service contract and obtain a refund for services not used; or
  • request compensation.

Therefore, you must be aware of how to compensate your customers if your goods or services do not meet the consumer guarantees. These guarantees cannot be waived through any contracts you enter with your customers.  

2. Protection From Unfair Contract Terms

The ACL protects consumers from unfair terms in consumer contracts.

A contractual term is unfair if it:

  • would cause a significant imbalance in the parties’ rights and obligations under the contract;
  • is not reasonably necessary to protect the business; and
  • would cause harm (such as financial hardship) to the consumer.

For example, an unfair term would be a membership agreement at a gym that allows the gym to vary its services without notice.

If a court or tribunal decides the term is ‘unfair’, the term will be void. That means the term will not apply to you or the customer. However, the rest of the contract will continue to operate, as long as the unfair term does not affect the rest of the contract.

Therefore, you should be careful with any standard form contracts that you use. If a customer has little to no opportunity to negotiate the contract’s terms with you, a court can rule those terms as unfair.

3. Misleading and Deceptive Conduct

The ACL prohibits misleading and deceptive conduct. You cannot mislead or deceive your customers (even if it is unintentional) through your:

  • advertisements;
  • trade promotions; or
  • words, promises or conduct when you engage with customers.

An example of misleading and deceptive conduct is if a business makes a ‘buy one, get one free’ offer, but raises the price of the first item to largely cover the cost of the second (free) item.

If your customer buys the deal because they were led to believe that it is a ‘buy one get one free’ and discovers that it was not the case, they can either:

  • obtain compensation for the loss suffered; or
  • seek a court order that allows the consumer contract to be revoked, which means you will have to pay the customer back.  

Key Takeaways

As a business owner, you need to know when the ACL applies to you and your customers. The ACL provides:

  1. consumer guarantees;
  2. protections for unfair contract terms; and
  3. protections against misleading and deceptive conduct.  

You may receive fines or sanctions if you do not comply with the ACL’s guarantees or protections. If you have questions, get in touch with LegalVision’s competition lawyers on 1300 544 755 or fill out the form on this page.

Simon Hillier
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