Consumer Protection Law for Social Enterprises

Social enterprises should take care to comply with consumer protection laws.  Specifically, the prohibition on engaging in conduct in trade or commerce that is misleading or deceptive.

Two common examples of issues that can arise for social enterprises are:

1. Advertisements about where the profits go

One of the biggest selling points that social enterprises have over competitors is that their business is achieving social good. Sometimes, the social good is achieved by distributing profits to particular charities or causes.  The Thankyou movement, and Kinfolk café in Melbourne are two examples of this. 

If a social enterprise is going to advertise that a proportion of its profits (whether it is 10% or 100% or other) goes towards achieving social good, it should take care to ensure that this happens.  This means:

• Ensuring a mechanism is in place to determine what the profits are, and how and when they will be distributed.
• If, in the early stages of the business there are some losses, ensuring that those losses are not attributable to excessive executive remuneration or other activities that could make it look as though profits are being siphoned off.

You may also like to consider whether you can publish information on your website that will provide transparency to consumers.  For example – outlining who your charitable partners are, how much you give to them, what they use it for and how they account to you for its use.

Belle Gibson, social media entrepreneur and founder of “The Whole Pantry” food and health app is an example of what can go wrong in this area – as reported by Fairfax Media.  Ms Gibson advertised that a portion of her company’s profits were distributed to charity.  Investigations revealed that the promised donations were well below what had been represented, and Ms Gibson claimed that this was due to cash-flow problems.  Consumer Affairs Victoria is now taking legal action against Belle Gibson and her company for contraventions of the Australian Consumer Law.

2. Receiving donations from the public to get a project “off the ground”

Social enterprises can often find it hard to attract the capital or seed funding necessary to get a project off the ground.   Crowdfunding, or other forms of wide-scale public fundraising can be used to overcome this problem.

Social enterprises should be aware that the Australian Consumer Law can apply to fundraising, as was illustrated by a recent opinion from Norman O’Bryan AM SC and published by Justice Connect (see p6).  So, it’s important to make sure that when you promise something to donors, that you can actually deliver on what you promise.

What does this mean in practice?  Here are some examples:

• Make sure you have a good business plan in place, and that you have properly costed a project, so you know what you need to get it off the ground. You don’t want to be in the position where you’ve spent donor funds, but you fell short of the amount that was actually required to deliver on the project due to poor planning.
• Make sure that you have a mechanism in place to ensure that the way you run your business will actually lead to the outcome (social good) that you are advertising.

In summary: a lot of the issues that arise in this area involve balancing a good sales-spin with what can realistically be achieved.

Our team would love to assist you in this area.  Contact us on (03) 9629 9629 today if you would like to discuss any of these issues.

Su-Ann Loh and Elizabeth Shalders