If you are running a business, it is important to know what you cannot legally do when dealing with customers. We all know that all customers must be treated fairly. At the end of the day, your customers will drive your businesses success. At times, business owners can find themselves in hot water because they have engaged in unfair business practices.
Table of Contents
What are Unfair Business Practices?
If you’re running a business, it’s important to make sure you are abiding by the rules and regulations set out by the Australian Consumer Law. The Australian Consumer Law define a range of sales practices that are illegal for Australian businesses to engage in, when dealing with customers. So, here are the top 5 unfair business practices and sales practices that must be avoided at all costs.
The 5 Unfair Business Practices
1. Referral Selling
Referrals are a great growth marketing tactic to increase your customer base. Now, referrals and referral programs, such as ‘invite you friends to try out [our company product or website] and you’ll receive 10% off your next order‘ are 100% legal.
However, you must ensure that your business is not engaging in ‘referral selling’. Referral selling is illegal under Australian Consumer Law. Referral selling is when a business persuades a consumer to buy a good or service by promising benefits to them if they aid your business sell those goods or services to other customers.
Example
Tell 5 friends about [our company] and if each of your 5 friends spends at least $29.95 at our store we will give you 50% off your next order!
It is illegal because the referring customer will only receive their benefit if the referrals actually purchase the product. Thus, referring customers are rewarded for actually driving the businesses sales. If you are considering implementing a referral program, be very cautious that you are not in fact ‘referral selling’ and taking part in unfair business practices.
2. Pyramid Schemes
It is illegal under Australian Consumer Law to participate in a pyramid scheme. It is also illegal to persuade someone else to participate in a pyramid scheme. This is because pyramid schemes actually make money off recruiting other people, in comparison to regular businesses that make money from selling their products or services. Pyramid schemes make money in two ways:
- The scheme receives payment when a new recruit ways to join the scheme,
- The recruitment bonus, paid to the member who recruited the joining member.
You must ensure your business in not taking part in unfair business practices, so make sure your employees are only receiving bonuses and commission from product sales, not member recruitment.
Get your Services Agreement now for free.
3. Unfair Contract Terms
There are a range of laws surrounding unfair contract terms that exist to protect customers from businesses whom include or write unfair terms into their customer contracts. This unfair business practice relates most commonly to standard form contracts. A standard form contract is a contract that is prepared by one party, for instance your business, without any negotiation, on a “take it or leave it basis”. Now, standard form contract are 100% ok and are especially common in service contracts or terms and conditions policies. However, the issue with standard form contracts and unfair contractual terms is that the contract in question cannot :
- Enable one party (usually the business) the avoid their obligations, but not the other,
- Allow one party to terminate the contract, and not the other,
- Allow one party to negotiate and change the contactual terms, and not the other.
If the contract does this, then it is possible that the contract is unfair and consequently engages in unfair business practices.
4. Unconscionable Conduct
All businesses must not engage in unconscionable conduct or behaviour, towards their customers and other businesses or competitors. Unconscionable conduct is behaviour that is harsh, oppressive or exploitative. For instance, if you are dealing with a consumer that is under a ‘special disadvantage’, such as limited English skills, little formal education etc, and your business produces a business sale by exploiting their condition, then you’ve engaged in unconscionable conduct. This happened to Mr and Mrs Amadio in the famous Australian case Commercial Bank of Australia v Amadio. For more information on what types of business behaviour would consist unconscionable conduct, see out article ‘What is Unconscionable Conduct?‘
5. Accepting Payment without Intending to Supply
It is illegal to accept a customers payment for goods or services if your business has no intention to supply that paying customer with those goods or services. Accordingly, you must not accept any sort of payment for your businesses goods or services if:
- You have no intention to supply the goods or services,
- Materially different goods or services are supplied,
- You knew, or should have known, that the goods or services purchased would not be supplied in a reasonable timeframe.
However, there are a few exceptions in these cases. For instance, if you had the intention to supply the goods or services but something when wrong, that was out of your control, then you will not have engaged in unfair business practices. You must always take reasonable precautions and exercise due diligence when dealing with customers.
Key Takeaways
Performing unfair business practices can truely damage your business, with major fines and penalties applying to each of these practices. There are great ways to grow your businesses sales and reputation without engaging in this type of conduct. All in all, causing grief to your customers will not aid your business. Foster your customer relationships and they too will foster your businesses growth.
