How to Keep Your Startup Salesforce Out of Legal Trouble

A salesforce is one of the key profit drivers for any startup.  If they deliver on a great sales strategy, your rainmakers can open your company up to a wealth of new clients and help unlock that next round of funding for your startup.

But don’t be blinded by the flashing dollar signs — to sustain your company and your salesforce, you need to ensure that they keep out of trouble. 

Below we outline some important legal considerations for your sales team. Failure to evaluate legal risks can end up affecting your company’s brand, and your reputation.

Why should I care if my salesforce is doing a great job?

Sales teams are often driven by commission — when the company earns money, they profit. This can provide strong personal incentives for your sales team to drive up sales and game commission structures to their personal advantage, sometimes 'at any cost' and without consideration of legal requirements.  

In the long run this could open up your company to a world of risk, regulatory red tape and potential penalties.  And if your sales team breaks the law, you or your company could end up being the one to pay the price.

Why do I need to worry about their actions?

Your company is vicariously liable for the actions of your employees. This means that you will be responsible for the actions of your employees, even if you are not aware of it and did not direct them to act in this way. This places the responsibility squarely on you to ensure you have proper procedures in place. Otherwise, any mistakes come straight from your pocket.

Even if your salesforce are agents, contractors or call centre sales representatives, generally your company will be responsible for an agent’s conduct. To avoid inadvertently breaching Australian laws, you must ensure that you take care to supervise the activities of your agents.

Know the law

The laws your salesforce needs to comply with can be tricky to navigate. The main source of the law in B2C transactions, and some B2B transactions, is the Australian Consumer Law (which is Schedule 2 of the Competition and Consumer Act 2010 (Cth).

Below are some of the main considerations that you need to consider:

Make sure your startup salesforce do not make any misrepresentations

Be very careful about your salesforce making promises that you can’t keep or don’t intend to keep. Section 29 of the Australian Consumer Law can hold your company liable for any misrepresentations made by your salesforce to consumers. Worse still, it doesn’t matter whether they intended to mislead or if it was a mistake, or whether that caused the customer any actual harm.

Examples include:

• Lying to a customer
• Leading them to an incorrect conclusion
• Creating a false impression
• Hiding or leaving out important information
• Making a false or incorrect claims

A further broader prohibition on misleading and deceptive conduct in section 18 of the ACL also applies — not only to your salesforce, but also to promotions, product descriptions, quotes, contract terms, negotiations, product packaging and even debt collection practices!  And misleading and deceptive conduct can apply to all types of activity arising in 'trade or commerce', including B2B activity.  

How would you feel reading a statement of claim alleging you'd engaged in misleading and deceptive conduct, seeking judgement for a significant sum of damages?  Against not only the company, but potentially against you personally— no wonder it's the go-to nuclear-option pleading in every litigator's back pocket!

If you do make representations, make sure they are included in your contracts

Make sure that any representations you do make are included in your contracts. Similarly, it is important that you include a clause in your contract that the written contract is the entire agreement between the parties and any representations that are not included in the contract are waived and are unenforceable. This will negate any claim that you purposely misrepresented something to your client. But be warned, a claim for misleading and deceptive conduct is still possible. 

Ensure proper pricing is represented

When you present prices to your customers, you should state the total price including any fees or applicable taxes. If you represent a price that is only part of the total price, you must also include the total price as a single figure as prominently as the part price. It is illegal to represent a part of the price as the total price. 

Also, section 47 of the Australian Consumer Law regulates the price which suppliers must charge if there are multiple prices displayed or advertised. It is an offence to sell anything other than the lowest price provided or displayed. 

Avoid bait advertising

This occurs where you entice customers with a promise of a sale or an inexpensive price, and once you have their attention, you make the sales item unavailable and direct them to purchase other similar goods, but at a higher price.

This is called ‘bait advertising’ and it is illegal. It can even occur when you reasonably believe that there is insufficient quantity of products to meet the likely demand, and therefore you do not intend to honour that price or you know it is unlikely that you will be able to honour that price. 

However, the following does not amount to bait advertising:

• If you advertise goods or services at a discount price and you intend to honour that price and that is reasonable to honour that price. 
• Advertising goods at prices which do not reflect a profit.
• Unexpectedly selling out of goods and services at a discounted price, provided you were not aware or should not have been aware that this was likely to occur. 

Avoid unfair contract terms

The Australian Consumer Law prohibits unfair contract terms for small business standard form contracts (and some B2B contracts). This law aims to minimise abuse in standard-form contracts as they are contracts which customers cannot individually negotiate.

An unfair contract term is one that:

• Would cause a significant imbalance in the rights and obligations of the parties under contract;
• It is not reasonably necessary to protect the legitimate interests of the party who is advantaged by it; and
• Would cause detriment to the other party if you were to rely on it. 

Past examples of unfair contract terms include:

• A clause that allowed a business to unilaterally increase the price for goods or services without any notice or reason
• A clause that allowed a business to unilaterally terminate the contract when the customer does not have that right
• A clause that automatically renewed and provided for a limited period of time for the customer to terminate the contract and no requirement to provide notice that the contract is about to expire 
• A clause which provided for an unlimited indemnity where the business was  unaccountable for their actions

We discuss unfair contract terms in more detail here.

Do not spam your customers

The Spam Act 2003 (Cth) prohibits sending spam to customers and potential customers. This does not need to be mass-distributed. To avoid this prohibition, you must ensure that communications to customers contain the following:

• The sender is identified;
• The message is not unsolicited and sent with consent. You can obtain consent by including a clause that your customer consents to receive communications from your company in your contracts and website terms and conditions; and
• The message includes a functional unsubscribe facility. 

The Act is broad and also includes instant messaging, SMS and MMS of a commercial nature.

Make sure your salesforce understands how the industry is regulated

Depending on your industry, your salesforce needs to be aware of the other regulatory requirements that might apply. This also includes mandatory codes of conduct and even voluntary codes (depending on your industry). 

For example:

• Laws regulating the advertising and sale of financial and credit products and services (the Australian Securities and Investment Commission Act)
• Laws regarding the safety of products supplied to consumers ( Electricity (Consumer Safety) Act 2004 (NSW), the Electricity Safety Act 1998 (Vic), the Electrical Safety Regulation 2002 (Qld), the Energy Products (Safety and Efficiency Act) 2000 (SA), and the Electricity Safety Act 1971 (ACT)
• Product safety and information standards (Competition and Consumer Act 2010 (Cth))
• Protection and use of personal information (Privacy Act 1988 (Cth))
• Competition and Consumer (Industry Codes — Food and Grocery Regulations 2015 (Cth))
• Trade Practices (Industry Codes — Unit Pricing Regulations 2009 (Cth))

There are also a number of relevant voluntary codes of conduct:

• Australian Association of National Advertisers Code of Ethics
• Internet Industry Codes of Practice — Internet and Mobile Content
• Code of Banking Practice
• Voluntary Code of Conduct for Motor Vehicle Advertising
• Fitness Australia Code of Ethics

Conclusion

It is important that your salesforce is adequately trained and understands their legal obligations. Not only is this a legal risk which can get you into trouble with regulators and open you up to penalties, but it could damage your reputation and your company’s brand. Generally, if you act honestly, openly and fairly with your customers, your company will be in the clear. 

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