Unconscionable conduct, misleading and false representations and breaches of the unsolicited selling provisions of the Australian Consumer Law

On 30 May 2017, the Federal Court ordered Acquire Learning and Careers Pty Ltd (Acquire) to pay penalties of $4.5 million for engaging in unconscionable conduct, making false or misleading representations and breaching the unsolicited consumer agreement provisions contained in the Australian Consumer Law (ACL).1

In awarding such a large penalty, the Federal Court considered the deliberateness of Acquire’s conduct, including its targeting of vulnerable consumers, the losses suffered by the Commonwealth and that Acquire was a market leader in the relevant sector. Given these matters, the Court considered that there was a strong requirement that the penalty act as both a general and a specific deterrent.

This decision is a timely reminder of the importance of providing your salesforce with regular compliance training, especially in respect of the specific requirements for unsolicited selling which are prescribed in the ACL.

Acquire held the personal information of job seekers, which was either purchased from online job advertisers, or collected in the course of operating its own recruitment businesses.

Acquire entered into agreements with vocational education course providers whereby Acquire would market and promote the courses to potential enrolees. Acquire received a fee from the course providers for each student who enrolled in a vocational education course as well as, from time to time, a percentage of the course fee.

Acquire employed or contracted individuals to market and promote the courses by making telemarketing calls to job seekers. Each telemarketer was paid an hourly rate plus commission and offered incentives for enrolling the job seekers into a vocational education course.

Telemarketers were also provided with a script which included a list of frequently raised objections of job seekers and suggested responses.

During the unsolicited telemarketing calls, job seekers were also encouraged to seek a Commonwealth Government education loan to pay for the course (VET FEE-HELP scheme). In obtaining a loan, a job seeker incurred a debt to the Commonwealth upon which interest accrued. The loan was repayable once the job seeker reached a minimum repayment income level of $53,345.

Contravening Conduct

The proceedings concerned recorded telemarketing calls made by Acquire to eight job seekers who enrolled in the VET FEE-HELP vocational education courses and incurred debts to the Commonwealth which ranged between $9,900 and $21,000.

In making the unsolicited telemarketing calls, Acquire admitted that:

  • undue pressure and unfair sales tactics had been used by the telemarketers;
  • false and misleading representations were made to the job seekers. Telemarketers, for example, told job seekers that:
    • the only purpose of their call was to find them employment and that Acquire had an employment opportunity for them; and
    • by enrolling in the course, the job seeker would be employed in a job,

when there were no reasonable grounds for making such representations;

  • job seekers were not provided with an opportunity to consider whether the courses being offered were suitable;
  • it failed to disclose that job seekers would incur a significant debt to the Commonwealth in certain circumstances. The debt comprised the course fee and a 20% loan fee (in most instances), with each debt being indexed annually and increased in line with the Consumer Price Index; and
  • it did not provide the information which is prescribed under the unsolicited consumer agreements (UCA) provisions of the ACL, to the job seekers at the time of negotiating and entering into the unsolicited sale agreements including:
    • no information was provided (either during the calls or in writing after the agreements had been entered):
      • about the job seekers’ rights to terminate the agreement during the cooling-off period;
      • about the way in which the job seekers could terminate the agreement; and
    • the job seekers were not informed that the education services could not be supplied for the duration of the 10 business day cooling-off period.

The Federal Court noted that the failure to provide the information required under the UCA provisions was serious given the size of the debts the job seekers incurred.

During the telemarketing calls the subject of the proceedings, some of the job seekers disclosed various matters to the telemarketers, which indicated that enrolment in the vocational education courses would not have been suitable for them. Matters disclosed included learning disabilities; a mental illness; the completion of limited schooling; difficulty understanding and speaking English; no access to a computer; and/or a previous inability to complete other education courses. Despite being informed of these matters, which the Federal Court noted were vulnerabilities, Acquire’s telemarketers continued to market aggressively the courses and the VET FEE-HELP scheme to induce the job seekers to enrol in courses which were unlikely to assist them to obtain employment and which they were unlikely to complete.

In most instances, the job seekers incurred a significant debt to the Commonwealth for no real benefit.

Accordingly, the Court determined that Acquire had engaged in unconscionable conduct, made false and misleading representations and breached the UCA provisions of the ACL.

In reaching its decision, the Federal Court noted that Acquire’s “… activities resembled those of an unscrupulous fly by night operation rather than those of a prominent and market leading provider of student recruitment services, as it describes itself.”2 Rather than helping job seekers, as it pretended, the Federal Court noted that Acquire’s motive was to “… maximise its profits through fees it received from course providers.”3

Size of the Penalty

Under section 224(3) of the ACL, the maximum penalty for contravening the unconscionable conduct and false and misleading representations provisions of the ACL is $1.1 million per contravention. The maximum penalty for a contravention of the prescribed information requirements for UCAs is $50,000.

The Federal Court was in no doubt that Acquire’s conduct was serious. Acquire’s conduct was systematic and its sales system increased the risk of breaches of this nature.

In setting the amount of the pecuniary penalty, the Federal Court noted that any amount should be set “… sufficiently high that a business, acting rationally and in its own best interests, will not be prepared to treat the risk of such a penalty as a business cost.”4

Relevant matters to consider when setting a penalty amount include the nature and extent of the conduct and whether any damage or loss has been suffered, the circumstances surrounding the conduct and whether those involved have been found previously by a court to have engaged in similar conduct.5

The Court considered that other matters, which are relevant considerations in setting a penalty amount, include:

  • the size of the company and its financial position. Acquire’s financial position was perilous, with its most recent financial statements showing an after tax loss of almost $13 million;
  • the extent to which the contraventions were deliberate, systematic and/or covert;
  • the duration of the contraventions;
  • whether there was a corporate culture which was conducive to compliance, for example, was there a compliance program and were disciplinary measures taken when there was an acknowledged contravention. For most of the relevant period, Acquire had no compliance program in place. When it subsequently implemented a compliance program, it did not prevent the continuation of the conduct. Acquire conceded that its compliance program was inadequate; and
  • whether the company is in a position of influence and its importance within the relevant sector.6

The various telemarketing calls to the eight job seekers were not isolated examples of conduct by rogue employees. The contraventions were systematic and took advantage of vulnerable unemployed job seekers by using unfair tactics and undue pressure, as well as false and misleading representations to induce them to enrol in unsuitable vocational educational courses. In entering into the agreements, the job seekers incurred significant debts of between $9,900 and $21,000 and Acquire’s telemarketers failed to provide the job seekers with the information about their termination rights as required under section 76 of the ACL. The failure to do this was serious given the significant size of the debts they incurred.

Taking the above into consideration, a penalty of $4.5 million was considered appropriate to deter Acquire from engaging in future conduct of this nature and to deter others from engaging in similar conduct. Had Acquire’s financial position not been so dire, the penalty amount would likely have been higher.

Take Home Points 

The judgment is a timely reminder for direct selling companies that it is important to have an adequate ACL compliance program in place and that compliance training be conducted regularly. High pressure sales techniques should be prohibited. Independent distributors engaged by direct selling companies must be aware of the disclosure requirements in respect of UCAs and only use sales agreements which comply with the UCA requirements contained in the ACL, where required.