Keep an eye on the ball

Developments in competition law can have a significant impact on business. Dr Michael Schaper explains the key things that directors of small-to-medium businesses must observe in future months. 

Sitting on the board of a small-scale business or an emerging entrepreneurial venture presents many challenges and opportunities. The governance structure of a small firm or a start-up means directors are required to wear many hats. Often at least one of the directors will also be the owner and will therefore have a role in hiring and firing, balancing the books, marketing and locking-up at the end of day. Other directors may too often be required to keep themselves up to date with many more issues, both at the operational and strategic level, than might be the case in a larger organisation. In this environment, there are three key areas under the umbrella of the Competition and Consumer Act 2010 of which directors must be mindful.

A core issue involves dealing with competitors. When it comes to cartel conduct, some basic knowledge at the board level can save your bacon. Any contract, arrangement or understanding to fix prices, share markets, rig bids or control output between competing firms is illegal, and may even lead to jail time in serious cases. If there is any doubt about dealings with competitors, directors should seek legal advice and familiarise themselves with the Australian Competition and Consumer Commission’s (ACCC’s) cartel immunity policy.
 
The second area where a hands-on director can play a pivotal role involves dealing with consumers. Under the Australian Consumer Law (ACL), it is illegal for a business to engage in conduct that misleads or deceives consumers, or which is likely to do so. It is also unlawful for a business to make false or misleading claims about their goods or services. One of the obvious areas is in your advertising and marketing: is it honest and accurate? Is any important information left out? Do your staff know what they can – and cannot – promise to customers? Another key thing to know is that the same rules apply online as they do offline. It is an area of growing importance as e-commerce and online consumer reviews take on more significance. Recently, Citymove paid $30,600 after the ACCC issued three infringement notices relating to allegations that the removalist company used fabricated customer identities to post testimonials on Google+ and YouTube.

A final issue involves the relationship between suppliers and retailers. When dealing with larger retailers, negotiations can be robust, but they must remain within the law. Our recent cases against Coles Supermarkets Australia put the spotlight on unconscionable conduct, the term for particularly harsh or oppressive behaviour that goes against conscience, business and social norms and standards. Coles admitted it had “crossed the line” in its dealings with several suppliers. The Federal Court ordered Coles to pay penalties totalling $10 million and Coles refunded more than $12 million to suppliers as part of an arbitration process. What are your relationships like with your suppliers, or with the firm you act as a supplier to? When choosing suppliers, product safety should also be front of mind. As we’ve seen with recent high-profile product recalls, every director needs to pay close attention to the integrity of their supply chain.

The ACL provides the courts with the power to decide if a term within a standard form consumer contract is unfair and therefore void. The Federal Government has announced that it will extend the ACL to cover small business standard form contracts. This would be a welcome change. Like consumers, small businesses are often vulnerable to unfair terms in contracts when offered a deal on a “take it or leave it” basis. The government proposes to provide protection for firms that employ fewer than 20 people, and where the value of the contract does not exceed $100,000.

Earlier this year, the independent Harper competition review panel handed down more than 50 recommendations on Australia’s competition policy and laws. Several recommendations, if adopted, will have a bearing on small firms. For example, the panel proposed removing restrictions on retail trading hours, making planning and zoning rules subject to a public interest test, and removing restrictions on parallel imports of books and second-hand cars. It’s now up to government to consider and implement the recommendations and, like the rest of the small business community, we’ll be watching with interest.