The high risk of poor sales practices

Directors must be alive to the risk of unconscionable conduct in sales practices directed at vulnerable people, as the recent ACCC action against Optus shows.

Very large penalties against major corporates always make headlines. We saw that in June, when the Australian Competition and Consumer Commission (ACCC) announced Australia’s second-largest telco had agreed to pay a $100m civil penalty for unconscionable conduct toward vulnerable consumers in 16 of its retail stores.

Directors have a responsibility to understand the key risks their entity faces, and to monitor and oversee the measures being taken to address them. This can involve when there is the foreseeable risk its conduct towards consumers or clients could harm the entity by exposing it to regulatory action, civil claims or reputational or commercial damage.

The ACCC’s settlement with Optus concerned unconscionable conduct, which is prohibited by the Australian Consumer Law and, for financial sector entities, the consumer protection provisions of the Australian Securities and Investments Commission Act 2001 (Cth). The unconscionable conduct laws apply to any conduct by an entity engaged “in trade or commerce” that extends beyond for-profit activities.

Unconscionable conduct can occur in any setting involving the acquisition or supply, or possible acquisition or supply, of goods or services, including financial services and products. It is not confined to dealings with vulnerable customers or clients, although the risks of sales practices misfiring in that context is more acute, as the Optus case demonstrates.

Elements of unconscionability

Statutory unconscionability is not defined in the legislation. Each Act includes a long list of factors that a court can consider in deciding whether conduct is unconscionable. Among them are the relative strengths of the parties’ bargaining positions, whether the customer or client was able to understand any documents related to the transaction, and whether any unfair tactics or undue influence or pressure were used.

Unconscionability is more than unfairness or unreasonableness. The test is whether “the conduct is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”. Those societal norms reflect the  values of contemporary Australian society. Deciding whether conduct is unconscionable requires close consideration of the unique facts and circumstances. It involves an objective evaluation of the entity’s behaviour, including the reasons for that behaviour and the likely effect of it. Importantly, the question does not focus on the motives of the entity or its officers or employees. Its (and their) state of mind or actual intent is not the point.

The legislation expressly states the rule can apply to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by that conduct or behaviour.

Vulnerable customers

In its settlement with the ACCC, Optus admitted the key elements of the case against it. These were that between August 2019 and July 2023, Optus sales staff engaged in inappropriate sales conduct in selling post-paid mobile products and services in some of its stores.

This included subjecting customers to undue pressure or influence, and inducing them to purchase a large number of products and services they did not want or need, or could not afford. Sales staff also sold products and services the customers were unable to use because of the lack of Optus coverage where they lived.

The conduct exploited customers who were vulnerable or disadvantaged. Among them were people living with mental disability or diminished cognitive capacity, who were unemployed, financially dependent and indigent. Many of these customers were First Nations Australians who came from regional and remote locations. 

In some cases, despite knowing about the inappropriate sales conduct — and that the conduct was subject to ongoing internal and external investigations — Optus pursued debt collection activities against the customers. This included referring and selling their debts to third-party debt collection agencies.

A significant element here was the Optus failure to recognise and address the problem. When instances of inappropriate sales conduct came to light — often as a result of what the ACCC describes as the “very significant time, effort and emotional stress expended by the carers, advocates and/or financial counsellors” supporting the customers — Optus generally failed to fully remediate the conduct for long periods of time. In some instances, it did not act until after the matters were referred to the Telecommunications Industry Ombudsman.

Optus failed to take steps to fix the deficiencies in its systems, which allowed the conduct to continue. In reaching a settlement with the ACCC, Optus agreed “the nature and impact of the conduct that impacted the affected consumers was extremely serious. Further, Optus systems did not prevent the conduct from taking place in circumstances where Optus senior management became increasingly aware of those deficiencies.”

The sales staff at Optus were paid on commission. This had the potential to incentivise inappropriate sales conduct that locked consumers into ongoing contracts. Whenever an entity uses commission-based selling, it must think carefully about how that model can create, exacerbate or exploit consumer vulnerability.

For most directors, the kind of conduct engaged in by the Optus sales staff would be anathema. No reputable business or NFP wants to sell goods or services in a way that exploits the vulnerabilities of its customers or clients, or causes them harm. Often, this conduct takes place in settings very remote from the entity’s head office and despite formal compliance training. The key for directors is to recognise the conditions that can increase the likelihood of poor practices emerging and make sure management has the appropriate controls in place.

Directors are required to exercise reasonable care in overseeing the entity and its operations. This includes recognising situations where there is a real and foreseeable risk the entity could be harmed by engaging in conduct that falls short of the norms of acceptable business conduct.

This article first appeared under the headline 'Breaking bad' in the August 2025 issue of Company Director magazine.