As businesses across Canada and around the world struggle to manage the fallout from COVID-19, e-commerce looks to be one area of commercial activity that is set to remain in strong demand. E-commerce includes both (a) the online ordering of tangible goods (such as electronics, books, etc.) that are then delivered by delivery services, and (b) services that are purchased and delivered online (such as software as a service tools). From food delivery services to online providers of educational platforms, one common element between all of the diverse e-commerce activities is that many of them are selling directly to consumers. And by selling goods or services to consumers in Canada, e-commerce businesses become subject to Canadian consumer protection laws, with which they then have to comply.
Canadian consumer protection laws have wide applicability due to the breadth of who is considered to be a “consumer”. Effectively this means that anyone who is making a purchase for anything other than a business-related purpose is considered to be a “consumer”. Therefore most business that are engaging in e-commerce with individuals will be subject to consumer protection laws.
This bulletin therefore seeks to highlight certain key consumer protection legal issues that should be of interest to e-commerce businesses in the present COVID-19 business environment.
As business shifts increasingly online as a result of stay-at-home orders and a desire to practice social distancing, businesses that had not previously engaged in e-commerce may be contemplating it. If such businesses decide to move ahead with such activity, in doing so they must realise that many Canadian jurisdictions have in force specific requirements that must be complied with when certain agreements are entered into online. These requirements, when triggered, (a) prescribe certain content that must be included in the agreement, and (b) set out certain procedures that must be followed when contracting online.
In developing and implementing your e-commerce platform, it is therefore important to ensure that these legal requirements are reflected in its design and operation. Similarly, to the extent that your business elects to use a third party platform to provide e-commerce services, you should conduct due diligence to ensure that that platform is compliant with the requirements of Canadian consumer protection law and include the proper legal protections in your agreement with the service provider in order to ensure such compliance (e.g. an applicable representation and warranty).
Changes to Products and Agreements
As a way of either minimizing costs or mitigating risks arising from COVID-19 (e.g. not having sufficient staff), businesses that provide services online may be thinking about changing their service offerings. For example, they may be considering eliminating service offerings or reducing the previously promised level of performance. Before a business makes any such change to its existing service offerings, however, they should first review the restrictions that consumer protection law imposes on making such changes. Multiple provinces, for example, may require that changes to ongoing service offerings can only occur if the consent of the consumer is obtained. This can be a particular issue for businesses that offer different types of subscription services, as those generally involve a baseline type of service that the consumer expects to receive.
Similarly, to the extent that a business wants to amend the terms of the agreement it has entered into online with customers, those agreements can be subject to their own prescribed requirements that must be followed in order for those amendments to be enforceable. These sets of rules generally allow for amendments to be made either in accordance with the terms of an existing agreement (provided such agreement is compliant with these requirements) or by means of notice. E-commerce businesses who want to change their agreements with consumers therefore should review whether these rules are applicable to them and, if so, which amendment model works best for them. Similarly, new e-commerce businesses that may be in the process of creating the terms of their agreements should consider what language to include in order to most easily facilitate future changes to these terms.
Offering and Changing Credit Terms
As a way of providing some financial flexibility to their customers, e-commerce businesses may be thinking about offering credit facilities to their customers. Similarly, e-commerce business that already offer credit to their customers may be considering revising the credit terms that they currently have with their customers in order to provide those customers with a degree of financial relief. In either case, it is important for businesses to realise that consumer protection laws regulate credit agreements with consumers. It is also important to realise that these credit rules apply to all types of businesses that offer credit, not just financial institutions.
The credit agreement rules contained in consumer protection laws, among other things, include a focus on required disclosures that have to be made at various times in the relationship with the customer. Similarly, these rules prescribe steps that must be followed when certain types of changes are made to credit agreements (e.g. the notice and/or consent that may need to be obtained when increasing a customer’s credit limit). As the credit agreement rules in consumer protection law can get quite detailed (e.g. detailing how the annual percentage rate is described), it is critical that e-commerce businesses that offer credit ensure they understand the legal requirements when doing so.
The longer COVID-19 related restrictions continue to apply to households, the more likely e-commerce activity will continue to be essential to providing goods and services to Canadians. E-commerce can therefore both help these households obtain needed goods and services, as well as provide business opportunity to the providers of such products. As is the case with any business activity, however, no matter the opportunity, businesses must always be aware of the legal issues involved with their activities. In the context of consumer-focused business, many of those legal issues stem from consumer protection law.
Importantly, because consumer protection law is an area of provincial/territorial jurisdiction, all of the Canadian provinces and territories each have their own consumer protection laws in force. While these laws are in many ways quite similar, there are significant differences. Moreover, it is likely that many e-commerce business will be subject to most, if not all, of these different consumer protection laws. This is because they often apply whether or not the e-commerce business is located in a particular jurisdiction; what matters is where the consumer is located. This means that if your e-commerce business has traditionally only operated in one part of the country but is now deciding to expand nationally, because of the surge in e-commerce activity, you may need to account for legal regimes that you were previously not aware of or compliant with. Similarly if you are an international business that is now looking to serve Canadian customers, even if you are only providing an online service and have no physical Canadian presence, you can still be caught by the scope of Canadian consumer protection law.
Not complying with consumer protection law can run the risks of (a) class actions, (b) agreements with consumers not being binding and refunds being required, (c) fines, including for directors, and (d) naming and shaming by regulators. These legal risks will not diminish as a result of COVID-19. As a result, ensuring that your e-commerce activities are compliant with the consumer protection regimes applicable to your consumer-facing business should continue to be a focus for e-commerce business, particularly if you are selling to an increasing larger number of consumers, thus potentially increasing your exposure arising from any non-complaint activity.