Misunderstanding on what constitutes ‘misleading’

Wildly different penalties are leaving business owners scratching their heads on what is actually defined as a misleading claim, and what penalties they may be exposed to.

The Australian Competition and Consumer Commission (ACCC) recently announced that retailer Lululemon Athletica Australia paid $32,400 in penalties for alleged misleading statements around product returns.

For several weeks during May 2017, the company listed sale items on its website with the message “We made a little extra – don’t be shy, help yourself. It’s yours for keeps so no returns and no exchanges”, and that its returns policy stated that: “Final sale items like underwear, water bottles + We Made Too Much gear are yours for keeps”.

These statements, the ACCC alleged, suggested to consumers that they were not entitled to refunds or exchanges for faulty goods, which breaches Australian Consumer Law.

Meanwhile, egg producer Snowdale Holdings received penalties in court of a staggering $750,000 for marketing its eggs as free range, while the housing conditions of its hens breached the technical definition of what constitutes free range.

The vastly different penalties issued against the two businesses have created confusion as to what penalties can be levelled against a business.

Yet it is not just the penalty amounts that are causing confusion.

Managed investments company Huntley Management was fined $50,000 for claiming its investment scheme was approved by the Australian Securities and Investments Commission (ASIC), when in fact the company was registered with the agency.

“Well, I’m a little confused. I thought that, in order for a scheme to be ‘registered’ with ASIC, the content and mechanics of the scheme had to be ‘approved’ by them – otherwise it wouldn’t be registered. Semantics is a very expensive business!” said My Business reader DavidL in response to the story.

What the law defines as misleading statements

According to the ACCC website, it is illegal to make statements that “are incorrect or likely to create a false impression”.

This definition covers anything that may result in a consumer receiving an overall impression that is untrue, or not completely true.

The consumer watchdog stipulates such claims can pertain not just to price, but also quality, value, age, benefits of the product or service, and also about associated warranties and guarantees, the latter of which has legally mandated minimums.

Among the most common areas causing problems for businesses and their customers are fine print disclosures, comparative and bait advertising, country of origin labelling, competitions and giveaways, as well as claims that are exaggerated or overly vague.

Infringements are not admissions of guilt

A spokesperson for the ACCC notes that infringements issued by the regulator are not admissions of guilt, but are issued when it has cause to believe that the law has been breached – much like speeding fines.

A business has the option of paying the penalty and making the required changes to their claims to settle the matter, ignore the fine or actively dispute the allegation.

The latter two options will often see the business in court, and if convicted of the allegation, the penalties can be much steeper.

How penalties are calculated

The ACCC has the power to issue infringements, capped at a maximum of $10,200 per breach for a private company, or around $100,000 for a publicly listed company.

If the matter is taken to court, however, penalties are much more wide-reaching, with a range of factors taken into account when determining the penalty.

This may include the duration the false or misleading claim has been made, the seriousness of the deception, the impacts on consumers as well as the amount of profit the claim has generated for the business.

The ACCC was contacted for comment, but had not responded at the time of publishing.

 

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