In Short
- Warranties must comply with the Australian Consumer Law (ACL), including mandatory information and clear documentation.
- A separate warranty document is recommended, especially for warranties against defects.
- Misleading warranty references in advertising can lead to penalties under ACL.
Tips for Businesses
If offering warranties, ensure compliance with ACL by
preparing a clear, separate warranty document outlining terms,
claim processes, and coverage periods. Review any manufacturer
warranties and avoid inadvertently providing warranties in your
advertising. Seek legal advice to avoid potential breaches and
penalties.
Two leading retailers face class-action lawsuits over allegations they sold extended warranties that customers called "junk" and a "waste of money." The class actions claim that the retailers' extended warranties were "worthless" and offered no additional protection beyond what Australian Consumer Law (ACL) already guarantees.
In one of the class actions, customers reportedly paid an additional 10 to 40 per cent of the product price for these warranties. The lawsuit, filed in the Supreme Court of Victoria, claims the retailer engaged in misleading and deceptive conduct by selling these extended warranties.
If you run a business, you should know the legal requirements under the ACL regarding warranties.
When offering warranties to customers, you must comply with several obligations. Not complying with these obligations means you could face serious penalties. This article will explain the key considerations for business owners when offering warranties against defects in your products or services.
Understanding Different Types of Warranties
There are typically three different types of warranties.
- Express Warranties: These are specific promises made by a seller about a product's quality or performance, usually stated clearly in writing or verbally at the time of purchase;
- Extended Warranties: Customers can buy additional warranty periods to cover a product after the standard warranty expires. They essentially extend the coverage period (and are the subject of the current class actions); and
- Warranties Against Defects: Also known as manufacturer's warranties, these guarantee that a product is free from defects and will work as intended for a specified period. If defects occur during this time, the manufacturer will typically repair or replace the item.
These warranties are all under the ACCC's scrutiny. Regardless of the type, any warranty offered must comply with the ACL.
When Am I Offering a Warranty Against Defects?
If you are providing goods or services to customers, they are entitled to a number of consumer guarantees under the ACL.
If there is a defect in your product, the ACL holds that you will have to offer the customer a:
- repair;
- replacement; or
- refund.
However, a warranty against defects is a statement that businesses make to customers that if their products or services are defective, they will:
- repair or replace the products;
- resupply or fix a problem with the services; or
- compensate the customer.
While these are quite similar, a warranty against defects will go above and beyond the consumer guarantees under the ACL.
You need to be careful when making references such as 'money-back guarantees' in your advertising. That is because these statements are likely warranties against defects.
Do You Intend to Offer Warranties?
When drafting your terms and conditions, you will need to consider whether or not you want to offer a warranty.
For example, say you run a business that sells house paint. If you are offering a money-back guarantee if the paint cracks within seven years of purchase, you will be offering a warranty against defects.
Offering a warranty against defects is significant as it provides customers with additional protection beyond the standard consumer guarantees under the ACL. While they can increase consumer confidence and product appeal, you must carefully consider the terms and implications of such warranties. Providing warranties can create legal obligations that go beyond statutory requirements and can lead to financial liabilities if not properly managed.
Have You Complied With the Mandatory Requirements?
If you are offering a warranty against defects, there are a number of requirements that you must include within the warranty document. Some of these requirements include clearly outlining:
- the mandatory wording;
- how long the warranty period will be;
- what your customer must do if a defect arises; and
- what your customer must do to make a warranty claim.
You should have a separate warranty document that sits alongside your terms and conditions. These mandatory warranty requirements must be contained in one document.
For example, your terms and conditions might mention that you will replace your defective products within two years. But, this will likely be considered a warranty against defects. Therefore, if you do not also include the mandatory wording and other requirements that go with warranties, you could be breaching the ACL.
Instead, it is better to reference your separate warranty document in your terms and conditions. You should state that the warranty document covers how you will handle any defects or issues with your goods or services.
Are You Passing on a Manufacturer's Warranty?
If you supply customers with products that a manufacturer originally makes, you may want to extend the manufacturer's warranty.
For example, if the manufacturer provides a five-year replacement guarantee against its paint cracking, and you supply this paint to customers, you should let them know about this five-year guarantee.
If your manufacturer has a warranty, you must consider how your customers claim under that warranty. Whether the customer must make a warranty claim directly to you or the manufacturer must be clear. You will also need to decide whether you will have any role in assisting customers in making claims to the manufacturer.
If the manufacturer has a warranty document, you should provide this to your customers. Ideally, you should also have any manufacturer warranty documents reviewed by a lawyer. This is because the contents of their document may mean that you will need to have your own prepared document to reflect the manufacturer's warranty.
You will also need to decide whether you intend to provide any warranties.
For example, if you have a painting company (which uses the manufacturer's paint), you could also guarantee that your painting services will be free from defects for a year. If this is the case, you will provide a warranty against defects, and a separate document is needed.
By offering a warranty on your painting services, you're guaranteeing the quality of your work, not the quality of the paint itself. If a problem arises due to how the paint was applied (e.g., peeling due to improper surface preparation), your service warranty will cover it. However, if the paint itself is defective (e.g., it doesn't adhere properly despite correct application), that would typically fall under the manufacturer's warranty.
Check Your Terms and Conditions and Advertising
As mentioned above, if you do not intend to provide a warranty against defects, it is important that you don't mistakenly provide one.
For instance, you should be careful about making any references in your advertising or legal documents to:
- warranties;
- guarantees; or
- money-back policies.
This is because these references could be considered a warranty against defects. If you mistakenly provide a warranty against defects but do not comply with the mandatory requirements of the ACL, you could face penalties.
A lawyer should review your Terms and Conditions and advertising to ensure the wording is consistent with your business intentions.
Key Takeaways
Before offering a warranty against defects, you should consider whether you intend to go above and beyond your customer's rights under the ACL. If you intend to provide a warranty against defects, you will need to have:
- a warranty document prepared;
- your terms and conditions reviewed; and
- any manufacturer's warranty reviewed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
