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Business owners and executives alike face the constant uphill battle of meeting targets and bringing in sales. While you may employ a range of creative sales strategies, when do you go too far?

Under the Australian Consumer Law (ACL), it is illegal to engage in unfair business practices, and you should ensure that you avoid doing so in the process of running your business. Below, we provide some guidance on how you can avoid engaging in the following unfair business practices:

  • Offering rebates, gift and prizes to consumers (Section 32 of the ACL);
  • Engaging in bait advertising (Section 35 of the ACL);
  • Wrongly accepting payment (Section 36 of the ACL); and
  • Pyramid Selling (Section 44 of the ACL).

Offering Rebates, Gifts and Prizes

If you have offered rebates, gifts or prizes, you will know that it is a powerful marketing tool to promote your business’ brand. However, the ACL provides that a person must not, in trade or commerce, offer a rebate, gift or prize if they do not intend to provide the good or service. For example, it would be illegal to offer a gift pack valued at $50 if customers spend over $200 at your store if you had no intention of supplying the gift pack.

Your business must apply the rebate, gift or prize within a specified or reasonable time. This does not apply, however, if you could not supply the good or services because of circumstances beyond your control. Of course, you must show that you have taken reasonable precautions and exercised due diligence to avoid a failure to supply the goods or services.

You can provide another rebate, gift or prize as long as the person agrees to the alternative offer. This is particularly useful when you genuinely are unable to supply a particular good or service. However, you are still required to supply the alternative rebate, gift or prize within a reasonable time.

Bait Advertising

Bait advertising occurs when your business proposes an insincere offer to sell when in truth it has no intention to sell the product or service.

For example, the Australian Competition and Consumer Commission (ACCC) issued six infringement notices to six Harvey Norman franchises in 2011, totalling $39,600, for advertising a camera in a catalogue when they were unable to supply the product.

To avoid inadvertently engaging in bait advertising, you should always ask yourself:

  • Are you in a position to supply a product?
  • Is the offer reasonable for the market or industry of your particular business?

It is important to bear in mind that the ACL will prohibit:

  • The act of bait advertising itself; and
  • Conduct that occurs after you advertise (i.e. failing to offer goods or services at the price that is specified).

So, there is an obligation to supply goods or services at a price specified for a reasonable period and in a reasonable quantity.

Wrongly Accepting Payment

Another example of an unfair business practice is wrongly accepting payments from your customers or clients for goods or services which you do not intend to supply under the terms of the offer. It applies whether or not the customer has made full payment. For example, in ACCC v EDirect Pty Ltd [2008] FCA 65, EDirect knowingly sold mobile phones to customers who would not have network coverage at their home address or local community. They were found to have wrongly accepted payment and engaged in unfair business practices.

Further, if your business accepts payment or other consideration for the supply of goods or services, you must supply the goods or services:

  • Within the specified time; or
  • Where there is no specified time, within a reasonable time.

There are two main defences available for this unfair business practice, namely:

  • You could not supply the goods or services within the specified or reasonable time because it was out of your control; and
  • Your business offered to supply different goods or services as a replacement and the other person agreed to the offer.

Pyramid Selling

Pyramid selling is unlawful in Australia and involves requesting newcomers to make a payment to join a scheme. In return, the scheme will promise payment to these newcomers for recruiting new members to the scheme. As such, the pyramid scheme makes a profit not from selling a good or service, but from the recruitment of new members.

Section 45 of the ACL which prohibits this conduct can have extra-territorial operation. This means that as long as there is conduct amounting to participation in Australia, section 45 is not limited to the protection of Australian consumers.

Key Takeaways

The ACL prohibits conduct which constitutes unfair business practices in the course of marketing, selling and supplying your goods or services. You must ensure that you do not engage in these unfair business practices to avoid a contravention of the ACL and pecuniary penalties. While unfair business practices are not limited to the examples in this article, businesses should familiarise themselves with them in the course of their operations.

If you have any more questions about unfair business practices, our specialist consumer lawyers are more than happy to help. Get in touch on 1300 544 755.

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