We are generally taught from an early age that telling lies is bad and that we should relate to each other with integrity, honesty and respect. As consumers, these underlying values often frame our expectations when dealing with businesses and equally, most good businesses strive to present those values.
What Does the Law Say?
It therefore might not surprise you that there are laws in Australia that prevent businesses from being untruthful in their everyday dealings. However it might surprise you to learn that the law is not only concerned with obvious and blatant lies but also conduct that is likely to mislead or deceive. This means that some of the more subtle things that businesses do that might give others, particularly customers, the wrong impression could breach the law.
What Could Be the Consequences for your Business?
Under the Australian Consumer Law, there can be heavy penalties for businesses that engage in conduct that is misleading & deceptive, or conduct that is likely to mislead & deceive. If your business is a corporate entity, this could involve penalties of up to $1.1 million per misrepresentation, while individuals could face penalties of up to $220,000 per misrepresentation. It’s therefore very important that your business takes proactive steps to make sure that you avoid doing anything that misrepresents your business and the goods and services it offers.
Where Could your Business be at Risk?
Sometimes it’s hard to identify aspects of your business operations that are most at risk, so it might be helpful to look at some examples of where other businesses have found themselves in trouble.
1. Special Promotions
A well-known jewellery store was recently penalised $250,000 for producing sales catalogues showing pictures of jewellery with “Was” and “Now” prices. The Federal Court found that the representations in the catalogue were misleading & deceptive because some of the advertised jewellery items had never been sold for the “Was” price.
2. Job Advertisements
The Australian Competition & Consumer Commission (“ACCC”) recently commenced Federal Court proceedings against a franchise for job advertisements that the franchise published. The advertisements contained false statements about the training, supervision and accreditation that job applicants could expect to receive from the business. The ACCC alleges that these representations were misleading & deceptive and is seeking various orders against the franchise company, the individual director of the company and the company’s business development manager.
3. Headline Prices & Hidden Costs
The Federal Court recently penalised a car hire company $30,000 for online advertising where it published headline daily car hire prices but then also charged a range of other fees to its customers, such as ‘administration’ and ‘vehicle registration’ fees. The ‘hidden’ nature of the additional charges was found to be misleading.
4. Door to Door Sales
A business selling adjustable beds was recently penalised $19,800. The ACCC alleged that the door-to-door salesperson employed by the business had made statements during the presentation that were misleading & deceptive including:
- that it was the first day that the beds were being offered at a special price;
- the value of a ‘lifetime warranty’ that was being offered; and
- the total amount that a customer would need to pay under a payment plan.
5. Representations about the Origin of Goods
This year, a major supermarket chain was issued infringement notices totalling $61,200 for displaying imported fruit directly under boards that gave the impression that the fruit was grown locally. Even though the fruit had stickers showing the actual country of origin, the ACCC considered that the overall impression given to customers was misleading.
The ACCC has also issued proceedings against the same supermarket chain for selling bakery goods labelled with statements such as “Baked Today, Sold Today” and “Freshly Baked In-Store”. The ACCC’s view is that those labels are misleading because some of those bakery products are not baked onsite or have arrived at the store frozen to be partially baked at the store.
Also this year, an egg supplier was penalised $50,000 for supplying cage eggs but representing that the eggs were free range.
6. Representations about Materials Used in Products
Last year, the Federal Court ordered a bedding products retailer to pay $55,000 in penalties for making false claims that its products contained 100% sheep wool or 100% alpaca wool when the products were made of blends of wool and synthetic materials.
7. Representations about What Products can Do
Recently, a well-known paint brand was taken to Court by the ACCC for statements made on its website, Facebook page, in magazines and in newspapers regarding the properties of its exterior paint products. The statements claimed that the paint had superior thermal qualities and could reduce interior temperatures, thereby reducing energy consumption costs. The ACCC alleges that those representations are not substantiated by appropriate scientific evidence. The case has not yet been resolved one way or another but it is a good example of where a business might be caught.
8. Affiliations, Endorsements & Customer Testimonials
Recently, the ACCC negotiated the removal of the word ‘organic’ from a number of bottled water products because water, by its very nature, can not be ‘organic’ according to recognised standards. In another example, the ACCC took legal action against a solar panel retailer for posting online video and written testimonials that were not made by genuine customers.
Some customers place a lot of value on celebrity & customer endorsements and other brand affiliations such as the words ‘organic’, ‘eco-friendly’ or ‘green’. If your business is claiming to be associated with a particular customer or quality standard, then it is important that you are able to substantiate those claims.
9. Representations about Consumer Rights
In an article earlier this year, we discussed the Consumer Guarantees that automatically apply under the Australian Consumer Law. In March, a prominent furniture retailer paid infringement notices totalling $13,200 for making misleading representations to customers in relation to their rights under the Consumer Guarantee legislation.
Six Steps to ensure your Business Tells the Truth
How can you safeguard your business from the risks of engaging in misleading & deceptive conduct?
Here are 6 steps that could help:
1. Conduct a ‘Lie Detector Test’ on your Business
Stand back and look at the different ways that your business conveys information and interacts with the outside world about your goods and services. Take note of any key risk areas that might be an issue for your business (you might like to use the examples detailed above as a guide).
2. Develop and Enforce Clear Policies
Once you’ve identified the potential risk areas, examine the strategies you have in place (or need to put in place) to make sure that your business consistently tells the truth. This might include:
- Setting clear standards about what can and can’t be said about a product or service;
- Creating new levels of accountability around who can provide the information;
- Introducing policies to ensure that any information to be printed and published is checked and approved by an authorised person prior to being released; and
- Providing clear and precise guidelines about how displays are assembled (including the content of the promotional material) and how products are labelled and/or price-tagged.
3. Educate your Staff
Sometimes misrepresentations can be made inadvertently due to insufficient staff training or inadequate product awareness. Implement training programs in your business including new staff inductions and pre-launch product information sessions (so that the staff who promote the product have had sufficient time and information to properly understand the product or service prior to its launch).
4. Examine your Complaints Handling System
Review the way that your business handles complaints. Make a record of each complaint and take the time to identify the underlying cause of each complaint. If your business receives a large number of complaints about the suitability or quality of a product, the product may not be the problem. It may be that your business has created the wrong impression or built unrealistic expectations about what the product can do and your sales pitch is the problem.
5. Engage an Objective Bystander
Engage the services of an ‘objective bystander’ (who either understands or is representative of your target market) to review your promotional campaigns before they are finalised. Ask the bystander to provide you with their impressions they receive from your proposed promotion. Compare the results with what your business would actually deliver and make any necessary adjustments to make sure your customers are not misled.
6. If you’re not sure, ask!
It can be hard work to make sure that you are fully aware of your business’ obligations under the Australian Consumer Law and to make sure that your business is compliant. The ACCC website is a good place to start but if you need help to identify the risk areas in your business and to develop ways to avoid misleading & deceptive conduct, then you should seek professional legal advice.
For further information, please contact the author.
This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.