Business fundamentals

Five tips for Fair Trading Act compliance

4 min read

In 2017, several businesses received six-figure fines under the Fair Trading Act 1986 for misleading or deceptive conduct, or making unsupported advertising claims. There is every reason to believe that 2018 could see similar penalties.

Here’s a few tips to help you meet your obligations under the Fair Trading Act.

1. Ensure your pricing claims are accurate

Misleading and deceptive pricing has been high on the Commerce Commission's enforcement agenda recently. Accordingly, a good starting point for ensuring compliance with the Fair Trading Act is to review the accuracy of your pricing claims.

Towards the end of last year, the Commerce Commission filed a number of charges against a retailer, alleging that the company's advertising created a false impression that it offered the lowest prices for its products. This case highlights the importance of ensuring that pricing claims are not only technically accurate (e.g. "if you find a lower price on an identical stocked item, we'll beat it by X percent") but also convey an accurate overall impression.

Sale pricing has also been a recent focus for the Commerce Commission, with a retailer fined close to a million dollars last year for 'calculated' false sales advertising. While the conduct in that case was flagrantly misleading, slippery sales advertising is unlikely ever to go down well with the Commission.  When advertising sales and other discounts, take care to ensure that deals are genuine and offer real savings to consumers.

2. Have evidence to support your marketing claims

Since June 2014 it has been illegal for businesses to make claims about their products or services unless they have reasonable grounds to support those claims.

Towards the end of last year we saw the first business convicted under this new law, with a manufacturer fined over $300,000 for making unsubstantiated and misleading claims about the performance of its products.

It is likely that the Commerce Commission will look to bring more prosecutions in relation to unsubstantiated claims in 2018.  To keep your business safe, ensure that you have reliable evidence to support any claims that you make about your products or services.  It is also essential to maintain good records, as you must be able to demonstrate that you had reasonable grounds to support your claim at the time the claim was made.

3. Take care when making comparisons

A quick way to raise the ire of a competitor is to make a misleading or deceptive comparison between your respective products or services.

For a comparison to comply with the Fair Trading Act, it must be fairly drawn. This means that you must take care to compare apples with apples.  Broad-brush claims should be avoided as they carry greater potential to mislead. Be specific about the basis for any comparisons made (e.g. price, quality, service).

4. Seek legal advice when naming new businesses, products and services

Too often we see businesses inadvertently adopt a name that breaches the Fair Trading Act. 

For instance, it is a common misconception that if a name is available on the Companies Register, then it can legally be used in trade. This is not necessarily correct.

Whether you can legally use a particular name (as the name of your business, or as the name of one of your products or services) depends on a variety of factors. For example, if your chosen name is identical or similar to the name of an existing business (or product or service), your use of the name could potentially mislead or deceive consumers.

Your chosen name must also not be misleading or deceptive in light of your business activities. 

To avoid costly headaches in respect of branding, all new names and logos (for both the business itself, and individual products) should be legally vetted for compliance with the Fair Trading Act and other relevant legislation (most notably the Trade Marks Act 2002).

5. Educate your staff

Undisputedly, one of the best strategies for reducing the risk of non-compliance with the Fair Trading Act is to ensure that your staff understand their legal obligations. As directors, managers and employees can be fined up to $200,000 in their individual capacity for breaching the Act, and even face criminal charges, it is in everyone's interests to operate within the bounds of the law.