Unfair business practices

There are a number of sales practices that are illegal for businesses to engage in when dealing with their customers.

Referral selling

The Australian Consumer Law makes it illegal for a business to persuade a consumer to buy goods or services by promising benefits if they help the business supply goods or services to other customers.

Pyramid schemes

It is illegal to participate in, or to persuade someone to participate in, a pyramid scheme.

Pyramid schemes make money by recruiting people rather than by selling actual products or services, even if the scheme includes the selling of a product. These schemes work by asking new participants to make a payment, known as a ‘participant payment’, in order to join. New members are promised payments for recruiting other investors or new participants.

Unfair contract terms

There are laws protecting consumers from unfair terms in circumstances where they have little or no opportunity to negotiate with the business, such as standard from contracts.

Most terms in standard form consumer contracts are covered by unfair contract terms law. However, terms in consumer contracts that set the price or define the product or service being supplied are exempt.

The fairness of a term must be considered in the context of the contract as a whole.

A finding by a court that a contract term is unfair, and therefore void, means that the term is treated as if it never existed. However, the contract will continue to bind the affected parties to the extent that the contract is capable of operating without the unfair terms.

The following questions can help you recognise a potentially unfair term:

  • Does the term cause a significant imbalance between your rights and obligations and those of the consumer's?
  • Is the term reasonably necessary to protect the legitimate interests of the business?
  • Would the term cause the consumer detriment (financial or non-financial) if you tried to enforce it?
  • How transparent is the term?

Unconscionable conduct

Businesses are prohibited from acting in an unconscionable manner against their customers and against other businesses. That sort of behaviour is known as unconscionable conduct.

Certain conduct may be unconscionable if it is particularly harsh or oppressive or where one party knowingly exploits the special disadvantage of another. Unconscionable conduct is more than just hard commercial bargaining; it must be against conscience as judged against the norms of society.

The law sets out a list of factors that courts may consider when deciding whether conduct is unconscionable, including:

  • the relative bargaining strength of the parties
  • whether the stronger party used undue influence, pressure or unfair tactics
  • the extent to which the parties acted in good faith.

Accepting payment without intending to supply

You must not accept payment for goods or services if:

  • you do not intend to supply
  • you intend to supply materially different goods or services from those requested
  • you know, or should have known, you would not be able to supply the goods or services in a timely manner.

This part of the law is not intended to affect businesses who genuinely try to meet supply agreements, for example, if:

  • the failure to supply was due to something beyond your control
  • you exercised due diligence and took reasonable precautions.