With Christmas just around the corner, there’s one list you definitely don’t want to end up on – the ACCC’s black list.
The ACCC, which is the regulator for the Australian Consumer Law (ACL), has had a mammoth year of enforcement activity both in and out of the Federal Court.
Highlights include penalties ordered by the Federal Court against training college Empower Institute ($26.5 million), Optus ($10 million) and Jetstar ($1.95 million) for contravening the ACL. What’s more, the regulator has shown no sign of slowing down. In recent months, the ACCC has commenced proceedings against each of Google, Kogan, Sony, Samsung and Mazda, alleging further breaches of the ACL against each of them. As a reminder, for breaches occurring after 1 September 2018, the maximum penalty which can be sought by the ACCC against a company for each breach of a key provision of the ACL1 is the greater of up to: (a) $10 million; (b) 3 x the value of the benefit; and (c) 10% of the contravening entity’s annual Australian turnover.
The ACCC has also been swift to hand out fines and seek undertakings from businesses on its own initiative for alleged breaches of the ACL. Various homeware and furniture retailers (including Big W, Target and Plush), an online game publisher (ZeniMax), and travel agency (Flight Centre) have been the latest to feel the sting for treading too close to the edge of unlawful conduct.
What does this mean for you?
Here’s our wrap-up to help online and traditional bricks and mortar retailers avoid common pitfalls when advertising sales, running promotions+ and dealing with customers in relation to faulty products this festive season.
1. Advertising sales (“was/now” discounts)
With the Australian economy experiencing challenging times, businesses know that it’s going to take a lot more effort than usual to convince consumers to spend big this festive season. However, it’s important not to underestimate the ACL risks around discount pricing.
Earlier this year, the ACCC commenced proceedings in the Federal Court against major online retailer Kogan for allegedly making false and misleading claims around a “10% discount” promotion which it ran in June 2018. And just a few weeks ago, the ACCC fined four major furniture chains (Plush, Koala Living, Early Settler and Oz Design) a total of $50,400 for using was/now advertising in a manner which the ACCC considered false and misleading.
Here are our top tips for running an ACL compliant sales promotion:
- Remember, was/now advertising (e.g. “Was $799, Now $599”) should only be used where the advertised products have been offered at the “was” price for a reasonable period before the sales promotion. What constitutes a reasonable period will vary between cases, but 6 months is the typical benchmark adopted by the ACCC. This is to demonstrate that the sale is a genuine sale – otherwise, customers are likely to be misled about the level of discount available when buying the product at the “now” price.
- Have a discount pricing policy in place to monitor how discounts are calculated on sales items and product categories. For instance, in what circumstances would you use an “Up to 70% off armchairs” claim? Is it enough if only two of the 200 items within that product category are 70% off? This would likely be a high risk strategy, particularly if the remaining items in that category have much lower levels of discount (e.g. around 5%). With discount advertising, the devil is often in the detail and it is critical to have a robust and defensible calculation methodology behind your advertised discounts.
- Keep an updated schedule of all the listed and current sale prices for your SKUs so you can monitor how long a particular product has been on sale at a particular price in order to justify a discount pricing claim. Discounts should only run for a limited period (typically not more than a few weeks). As soon as that period expires, you must remember to return the product to its original listed price and remove any sales advertising around it – otherwise you may be running a high risk of false or misleading conduct under the ACL.
2.Running promotions and competitions
In October, Flight Centre was fined $252,000 by the ACCC for publishing allegedly misleading advertisements promoting holiday vouchers during the 2018 Christmas and 2019 Easter periods. Customers who spent $1500 were offered a $250 voucher to spend on their next holiday with Flight Centre. However, key conditions applied to the use of these $250 vouchers. These conditions were: (1) vouchers were only redeemable on a holiday worth more than $5000; and (2) customers could only redeem their voucher within a limited timeframe. The ACCC considered that Flight Centre had not properly disclosed these conditions to consumers and had therefore been false and misleading in its advertising in breach of the ACL.
If you are planning to use promotions or competitions to raise your business profile and/or boost sales over the holiday period, you should:
- Double-check your promotional T&Cs and ensure that any key conditions are identified in the headline advertisement for your promotion. If you have conditions unique to your offer which might not typically be expected by a reasonable consumer, you should call out those individual conditions upfront (e.g. “Min. spend $5000”), rather than simply relying on a generic “T&Cs apply” disclaimer.
- Ensure that your full promotional T&Cs are readily accessible to the public. You should set them out in full on your website and including a link to those T&Cs on any social media posts advertising the promotion.
3.Dealings with customers around faulty products
Consumer guarantees have continued to be a major enforcement priority for the ACCC throughout 2019. It is important to remember that where products are faulty, a retailer or manufacturer’s own warranty policy is not the end of the story.
In October, the ACCC accepted court-enforceable undertakings from each of Big W, Target, and ZeniMax (which owns Bethesda Softworks, publisher of the popular Fallout 76 online game) for allegedly making false or misleading representations in relation to consumers’ statutory rights under the ACL. In particular, Target and Big W were criticised for telling consumers that they needed to contact the manufacturer directly to obtain a remedy if their claim was made outside the retailer’s warranty period.
- Retailers owe obligations to consumers directly under the ACL. Where there has been a failure in respect of a consumer guarantee (e.g. “acceptable quality”), retailers must replace, repair or refund the faulty item – irrespective of whether or not the retailer’s own warranty period has expired.
- Check customer service documents and sales and service team scripts to ensure that they do not contain any inaccurate or misleading representations around consumer guarantee rights under the ACL. In particular, watch out for statements around arbitrary time limits on obligations under the consumer guarantees. These are serious red flags to both the regulator and increasingly, ACL savvy consumers.
In this high risk environment, it’s more important than ever to recognise the red light issues under the ACL – before the ACCC brings your business to a complete halt.
Have yourself a very compliant Christmas.
1. See our previous focus paper ” Penalties looming for unfair small business contracts“.
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