Businesses often require customers who make a complaint about their products or services to sign a non-disclosure agreement as a precondition to receiving compensation or a refund.
However, legislative changes in New South Wales have imposed greater restrictions on businesses which use such non-disclosure agreements.
What is a non-disclosure agreement and why do businesses use them?
Non-disclosure agreements are used by parties to settle disputes and to prevent disclosure of confidential or sensitive information.
In the context of consumer disputes, they typically provide that, in return for the payment of a sum of money, the consumer will not disclose information about the product or service to any person (such as other consumers) or make disparaging remarks about the business. The business is essentially buying the silence of the consumer to protect its brand name and reputation.
What are the new changes?
Section 86AB of the Fair Trading Act 1987 (NSW) came into effect on 28 February 2019 (Commencement Date).
It provides that:
- any provision of a non-disclosure agreement entered into before or after the Commencement Date is void (ie, unenforceable) to the extent that it restricts the ability of a consumer to make a complaint to Fair Trading NSW about any products or services
- any business which enters into a non-disclosure agreement with a consumer after the Commencement Date must, prior to or at the time of entering into the agreement, inform the consumer that the agreement does not limit the consumer’s ability to make a complaint to Fair Trading NSW
What are the penalties for non-compliance?
The maximum penalty for any business which fails to inform a consumer of their right to make a complaint to Fair Trading NSW pursuant to section 86AB is:
- $22,000 for corporations
- $4,400 for non-corporations
Fair Trading NSW, the regulatory body in charge of consumer complaints in NSW, has released a Statement of Regulatory Intent signalling their compliance and enforcement approach to the new laws.
Fair Trading NSW has indicated it will not penalise businesses for breaching section 86AB during the first six months of its operation (ie, between 28 February 2019 and 1 September 2019).
However, it expects that any business which is made aware of the new laws will take appropriate actions including informing consumers of their right to lodge a complaint and changing their business operations.
What should a business do?
We recommend businesses:
- prepare a standard information notice to accompany any non-disclosure agreement which informs consumers of their right to make a complaint to Fair Trading NSW
- update their standard non-disclosure agreements to remove the now-void provisions
Businesses have until 1 September 2019 to make these changes, otherwise penalties will apply!
- businesses must comply with section 86AB of the Fair Trading Act 1987 (NSW) in relation to non-disclosure agreements with consumers
- penalties will apply from 1 September 2019
- businesses should update their non-disclosure agreement documentation to be compliant with the new legislation
Please contact our commercial law team at Matthews Folbigg Lawyers on 9635 7966 if you require legal advice or assistance in respect of any commercial matter.