Interior designers often ask us whether they can source products for their clients or engage tradespeople such as builders in return for a commission. The short answer is yes. The catch is: any benefit or commission must be disclosed to your client.
In Australia, taking a secret commission is a criminal offence and can attract heavy fines. In some States, even jail.
As its title suggests, the law prevents someone from accepting money or other benefits from a third party when they refer goods or services to someone else (in this case, your clients). This does not mean that interior designers cannot source products for their clients, but they need to disclose any benefits they get beforehand and preferably do so in a contract.
Let’s examine this as a case study.
Case study relating to secret commissions law
Kylie who an interior designer is engaged by a client to decorate a home with a feminine French provincial touch. She engages her friend who is a florist to supply thousands of dollars’ worth of artificial floral arrangements for the home. Even though Kylie does not get a discount from the florist, the florist sends Kylie expensive roses once a week for two months to demonstrate her appreciation for the referral. As Kylie’s client does not know that Kylie is receiving the expensive roses from the florist, it is a ‘commission’ that is ‘secret’ to the client.
Put another way, the client expects Kylie to design the home by sourcing products based on their merit, affordability and value. The client does not expect Kylie to use products based on what benefits she can get from sourcing them. In doing so, Kylie is no longer providing independent or unfettered advice and is in breach of the law.
Interestingly enough, secret commissions laws apply to goods and services, so both Kylie and the florist could get into trouble if the commission was not disclosed to the client.
The following tips will help you stay on the right side of the law but remember nothing replaces professional legal advice tailored to your circumstances:
TIP 1: If your advice is likely to influence a client’s decision to buy something, and if you are receiving a benefit for providing that advice, then the secret commissions laws will apply.
TIP 2: Secret commissions laws not only cover incentives or payment; they can also apply to the receipt of undisclosed gifts.
TIP 3: Ensure that you properly disclose any benefits that you may receive from the referral to your customers.
TIP 4: Just because others in the industry may be doing it doesn’t make it legal.
TIP 5: While secret commission laws do not state how a benefit should be disclosed, it is best to disclose any referral arrangements in writing.
TIP 6: In your agreements with clients, you should state that you may receive benefits from a supplier and or a tradesperson for the referral.
TIP 7: There can be serious penalties if you break the secret commissions laws which include a significant fine or time in jail.
TIP 8: In Victoria, you can be fined up to $190,000.
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