Australian consumer law starts from a simple proposition: if your business deals with customers, you cannot treat them unfairly. That proposition is not just a slogan. The Australian Consumer Law (ACL), which is Schedule 2 of the Competition and Consumer Act 2010 (Cth) (CCA), turns it into a set of specific prohibitions, each carrying civil penalties and, in some cases, criminal consequences.
Five of those prohibitions matter most to small and medium businesses: referral selling, pyramid schemes, unfair contract terms, unconscionable conduct, and wrongly accepting payment. This guide sets out who the obligations apply to, what each prohibition actually requires, the penalties for getting it wrong, and the practical steps your business can take now.
Who these obligations apply to
Each of the five prohibitions applies to conduct in trade or commerce. In practice that means almost any business selling goods or services to customers in Australia, whether online or in person, and whether run as a sole trader, partnership or company. Two definitions decide whether the consumer protections reach you:
- Consumers: Under s 3 of the ACL, a person acquires goods as a consumer if the price is $100,000 or less, or the goods are of a kind ordinarily acquired for personal, domestic or household use. Goods bought for re-supply, or to be transformed in trade or commerce, are not consumer acquisitions. Services are treated on a similar footing.
- Small business contracts: The unfair contract terms protections also cover small business contracts, where at least one party employs fewer than 100 people, or has turnover of less than $10 million for its last income year (s 23(4) of the ACL).
The prohibitions are enforced by the Australian Competition and Consumer Commission (ACCC) and by state and territory fair trading agencies. The ACCC regularly investigates and takes court action against businesses of all sizes, so being small does not put you outside the regulators' sights.
Referral selling
Referral programs are a legitimate growth tactic. Telling customers they will get a discount for referring friends is generally fine. The line is crossed when the benefit depends on what the referred customer does after signing up.
Under s 49 of the ACL, a business must not induce a consumer to buy goods or services by representing that they will receive a rebate, commission or other benefit, after the contract is made, in return for giving the names of prospective customers or otherwise helping the business sell to other consumers, if receipt of the benefit is contingent on an event occurring after that contract.
The practical test is simple. If the referring customer receives their reward only once the friends they introduced actually purchase, that is referral selling. It is illegal because the reward is contingent on a later event. If the reward is given simply for making the introduction, whether or not a sale follows, the program is on safer ground.
Referral selling is a penalty provision, and a separate offence provision (s 167 of the ACL) applies. Before launching or updating a referral program, check that the reward is not conditional on the referred customer buying.
Pyramid schemes
Pyramid schemes are prohibited outright. Under ss 44 to 46 of the ACL, a person must not participate in a pyramid scheme, and must not induce, or attempt to induce, another person to participate.
The definition in s 45 has two limbs. A scheme is a pyramid scheme if new participants must pay a participation payment, and those payments are entirely or substantially induced by the prospect of recruitment payments for introducing further new participants. In other words, the money flows from recruiting, not from selling.
Section 46 adds a safeguard for businesses that market goods or services through a network: a court will look at whether participation payments bear a reasonable relationship to the value of the goods or services participants receive, and at whether the promotion emphasises recruitment or supply. If joining fees are out of proportion to what participants get in return, the scheme looks like a pyramid in disguise.
Participating in, or inducing participation in, a pyramid scheme is both a civil penalty provision and a criminal offence. The offence carries a fine for a body corporate of up to the greater of $100 million, three times the benefit obtained, or 30 per cent of adjusted turnover, and up to $2.5 million for an individual (s 164 of the ACL). The safe rule for commission structures is simple: pay people for product sales, not for recruiting other members.
Unfair contract terms in standard form contracts
This is the area that has changed most in recent years. Since 9 November 2023, a term of a standard form consumer contract or small business contract is void if it is unfair, and proposing an unfair term, or applying or relying on one, is itself a contravention attracting penalties.
The mechanics are set out in s 23 of the ACL:
- A term is void if the contract is a standard form contract and the term is unfair. The rest of the contract continues to bind the parties if it can operate without the unfair term.
- A business contravenes the law if it makes a standard form consumer or small business contract that includes an unfair term it proposed, or if it applies or relies on such a term. Each unfair term is a separate contravention.
Standard form contracts are the ones drafted by one party on a take it or leave it basis. Under s 27 of the ACL, if a party alleges a contract is standard form, it is presumed to be so unless the other side proves otherwise. Courts look at whether one party had all or most of the bargaining power, whether the contract was prepared before any discussion, and whether the other party had an effective opportunity to negotiate.
A term is unfair under s 24 of the ACL if it would cause a significant imbalance in the parties' rights and obligations, it is not reasonably necessary to protect the legitimate interests of the party advantaged by it, and it would cause detriment to the other party if relied on. Terms must also be transparent: expressed in reasonably plain language, legible and readily available. Typical problem terms include automatic renewal clauses, unilateral variation rights, broad limitation of liability, and a right to terminate for one side only.
Terms that set the upfront price or define the main subject matter are not assessed under the unfairness test (s 26 of the ACL). The protections extend beyond consumer contracts to small business contracts where one party has fewer than 100 employees or turnover below $10 million. Courts can declare a term unfair and can make orders to redress loss caused by unfair terms. Combined with penalties of up to $100 million for companies, this is now a genuine compliance risk rather than a drafting nicety.
Unconscionable conduct
Unconscionable conduct is conduct that is so harsh, oppressive or exploitative that it goes beyond hard bargaining. Sections 20 and 21 of the ACL prohibit it in trade or commerce, and s 22 lists the factors courts consider: the relative bargaining power of the parties, whether the customer understood the relevant documents, their age, disability, education and language skills, and whether any undue influence or pressure was used.
The leading case is Commercial Bank of Australia v Amadio [1983] HCA 14. Mr and Mrs Amadio, an elderly Italian-Australian couple with limited English, signed a guarantee over their son's company debts. The High Court set the guarantee aside: the bank knew of their special disadvantage and did nothing to ensure they understood the transaction.
For your business, the practical message is about vulnerable customers. If a customer is in a position of special disadvantage, such as limited English, low literacy, age or illness, and your sales process exploits that disadvantage to close a deal, you have exposed the business to an unconscionable conduct claim. Training staff to identify and slow down for vulnerable customers is a genuine compliance measure, not just good customer service.
Wrongly accepting payment
Section 36 of the ACL prohibits wrongly accepting payment in three situations:
- You accept payment intending not to supply the goods or services at all.
- You accept payment intending to supply goods or services materially different from what was paid for.
- At the time of acceptance, there are reasonable grounds to believe you will not be able to supply within the stated period, or within a reasonable time, and you are aware, or ought reasonably to be aware, of those grounds.
Section 36(4) goes further: once you accept payment, you must supply all the goods or services within the stated period, or within a reasonable time. There are defences. The supply obligation does not apply if the failure was due to the act or omission of another person, or a cause beyond your control, and you took reasonable precautions and exercised due diligence. It also does not apply if you offer different goods or services as a replacement and the customer agrees.
The practical rule is to be honest about delivery before you take the money. If you are taking deposits or pre-orders, make sure the stated timeframe is realistic and document the reasons if delays occur. Taking money for something you know you cannot deliver is not a cashflow strategy; it is a penalty provision.
Penalties and enforcement
The consequences for breaching these prohibitions are set out in s 224 of the ACL. For a body corporate, the maximum civil penalty is the greater of:
- $100 million;
- three times the value of the benefit obtained that is reasonably attributable to the contravention; or
- 30 per cent of the body corporate's adjusted turnover during the breach period.
For individuals, the maximum is $2.5 million. The fixed limb was doubled from $50 million to $100 million by the Treasury Laws Amendment (Doubling Penalties for ACCC Enforcement) Act 2026 (Cth), which commenced on 28 March 2026.
Unfair contract terms have attracted civil penalties only since 9 November 2023, when the earlier reforms commenced, so many businesses still underestimate this exposure. The ACCC and state regulators can also accept court-enforceable undertakings, issue infringement notices, seek injunctions and compensation orders, and obtain orders providing redress to affected consumers. Beyond the fines, a penalty finding is a reputational event that suppliers, lenders and customers will notice.
Compliance checklist for your business
Run through these six items as a practical starting point:
- Referral programs: make sure rewards are not contingent on the referred customer purchasing.
- Commission structures: pay for product sales, not for recruiting members, and audit any multi-level arrangements against s 45.
- Standard form contracts: review your terms and conditions for automatic renewals, unilateral variation, one-sided termination and broad liability caps.
- Vulnerable customers: train sales staff to recognise special disadvantage and slow down the sales process.
- Delivery timeframes: only accept payment when you can realistically supply, and document any delays.
- Regulator contact: if you receive an ACCC or fair trading inquiry, treat it seriously and get advice before responding.
When you need a lawyer
Every business should have its standard form contract reviewed for unfair terms, and the review is best done by a lawyer who knows how courts apply ss 23 to 27. A lawyer can also help design a referral or commission program that stays on the right side of ss 44 to 49, advise on the strength of a claim if a customer alleges unconscionable conduct or wrongful acceptance of payment, and manage any regulator inquiry or penalty proceeding. The cost of advice up front is trivial compared with a $100 million penalty exposure or a court declaration that your standard terms are unenforceable.
The duty most businesses miss
Of the five prohibitions, the one that catches businesses by surprise is unfair contract terms. For decades the consequence was simply that the offending term was void: the contract kept working, no one paid a fine, and few businesses bothered to change their paperwork. Since 9 November 2023 that is no longer true. Proposing an unfair term, or relying on one, is a separate contravention for each term, with the full penalty scale behind it.
The first action to take this week is to pull out the standard form contract your business actually uses, whether it is your website terms, a services agreement or a terms sheet on the back of an invoice, and look for the clauses that favour only you: automatic renewal without notice, unilateral variation, indemnities and liability caps that leave the customer with nothing. If a clause would strike you as unfair when you are on the receiving end, assume a court would agree, and have it redrafted. That single review is the highest-value compliance step available to most Australian businesses right now.