By: Jeremy Johnson
Published: 6/06/2013
Last month Dole came under scrutiny for labelling its fruit products with stickers bearing the slogan “Ethical Choice”.  Dole’s justification for the labels was that it has a commitment to ethical conduct throughout its business operations by providing a "safe, healthy, fair, and productive environment" for its workforce.1

Dole's marketing strategy is not an isolated example.  Businesses are increasingly relying on claims they exercise social responsibility for their workforce and off-shore supply chains.  Many businesses use labels and certificates, such as the Fairtrade Label, on the goods they produce to show they have met a minimum standard of ethical behaviour.  Ethical consumerism is growing.

Dole’s claims to be the “Ethical Choice” have been criticised by the NGO Oxfam.  Oxfam released a report expressing views and data on exactly why Dole did not follow ethical practices in its fruit production and supply chains.2 Oxfam’s report follows a report produced in August 2012 by the Commerce Commission which cautioned Dole that its marketing techniques could be a breach of the Fair Trading Act 1986 (although the Commerce Commission chose not to take further enforcement action for contravention of the Act).3 

The criticism of Dole's Ethical Choice label shows a new development in the regulation of claims businesses may make to be socially responsible.  Legal advisers will want to ensure they caution their clients on the risks of making such claims, but to give adequate advice may not be simple.

Green and Ethical Marketing

The Commerce Commission has been alert to the hyperbolic claims businesses make about the ethical side of their operations for some time.  For instance, in recent years one of the Commission's key focuses has been greenwashing - the spurious claims businesses make for marketing purposes about their efforts to be environmentally responsible.4  The Commerce Commission has provided guidelines for claims regarding carbon neutrality,5 developed an online directory of eco-labels,6 and has taken action against Wellington Combined Taxi Company Limited for the claims it made about the carbon emissions from its fleet of cars.  The Commission is therefore familiar with misleading and deceptive conduct around issues of sustainability.

Commentators have also had their say.  For example, Raewyn Clerk, writing on greenwashing, suggested that eco-labels should have, among others, the following characteristics:7
  • they are based on sound scientific and engineering principles;
  • the criteria are relevant, attainable, and measurable/verifiable; and
  • the standards should be consistent with the ISO’s standards, e.g. ISO 14024 (Guiding Principles for Eco-labelling programmes).
Despite the emphasis on greenwashing, the Commerce Commission has yet to provide comprehensive guidance on marketing that represents businesses' efforts to be ethical or socially responsible.  This is not surprising as what constitutes socially responsible business, or indeed an “Ethical Choice” product, cannot be empirically measured/verified by sound scientific principles or objective criteria.  Consequently, the regulation of claims to be "ethical" and "responsible" is more complex than the regulation of greenwashing. 

There is also a need for regulators to balance the patent benefits of encouraging businesses to improve the social impacts of their operations whenever possible.  It is entirely appropriate for businesses to publish the aspects of their operations that deserve commendation.  Any effective regulation must be careful to distinguish between legitimate and illegitimate forms of advertising to avoid being too heavy handed. 

When the notion of ethical business is inherently subjective but yet there are advantages to ethical marketing, how can legal advisers help their clients navigate such a grey area? 

To arrive at some useful general principles, it is helpful to consider the policy basis and the applicable laws on which regulators and watchdog organisations will rely.  

Fair Trading

The premise of New Zealand's legal framework to fair trading is to ensure consumers can make informed choices about products and services based on accurate information.  From this broad statement of principle arise three main problems with misleading representations about a business’s social ethics. 

First, consumers are misled into believing the product is of a certain standard.  Arguably it is no less misleading for a vendor of goods to falsely represent that the goods are manufactured by an ethically treated work force, than to falsely represent that a garment is handmade or from a certain origin.  There is no principled reason why fair trading regulation cannot extend to the context of social labelling.  Secondly, if businesses are able to reap the benefits of social labelling without taking the measures to actually meet the standards they claim to have met, the development of socially responsible business will be stunted.  In other words, there will be no impetus for a business to be a responsible and ethical employer, or to be environmentally responsible, if it is permissible for the business to win customer support by simply advertising that it is ethical and do nothing more.  Thirdly, if businesses can obtain a disproportional market benefit to the measures they take to be environmentally and socially responsible, there is a real danger that the businesses that have actually taken significant measures will be severely prejudiced.

Against this policy basis, it is possible to identify two main forms of misleading representations about business’ social ethics. 

The first is for a business to make broad representations about being ethical or responsible without having cogent grounds to substantiate the claims.  Often the conduct can be simple words, slogans or pictures used in the branding of the business’s goods.  These representations can often be accompanied by further nebulous information on the business’ website, such as corporate social responsibility (CSR) policies the business claims to implement.

The second form the misleading conduct can take is for the business to represent that its ethical standards have been approved by some third party.  There has been a proliferation of “labelling” organisations that exist to certify business standards.  In the coffee industry, for example, products can be certified by a range of organisations such as the Fair Trade Labelling Organization and the Rainforest Alliance.  There is, however, the danger that businesses make representations to give false impressions that their products have been certified by an independent third party standards authority.  This was one of the criticisms the Commerce Commission made of Dole's "Ethical Choice" labels;  the labels gave the impression that they were commended by a third party and, accordingly, the products were more ethical than Dole's competitor's products.

These two forms of misleading conduct may breach the Fair Trading Act in two separate ways.

First, broad misrepresentations about the measures taken by the business uses to substantiate its claims to be ethical may breach section 10 of the Act.  Section 10 provides:

No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for a purpose, or quality of goods.
 
At first blush, this section appears to be aimed at the physical aspects of goods rather than the intangible qualities of having been produced by a socially responsible business operation.  Fair trading jurisprudence has not come to consider such complaints, but existing cases set out that misinformation about a product’s manufacturing history may well contravene the section.

For example, in Levi Strauss & Co v Robertsons Ltd,8 the defendant labelled its jeans with a cardboard label stating that the jeans were “rodeo tested” and there were pictures of medallions marked “1953 Mudgee Rodeo” and “1957 Lithgow Rodeo”.  The jeans had actually been manufactured post 1983.  The Court found that it was arguable that the defendant had breached section 10 by misrepresenting the nature and characteristics of the goods.

Similarly, in the context of carbon claims, the Commerce Commission has advised that:9

Using broad or unqualified claims, such as 'green', 'environmentally friendly', 'energy efficient', 'recyclable' and 'recycled', with no further substantiation can risk breaching the Fair Trading Act as they are ambiguous and do not explain any specific environmental benefit. Stating a product is 'recycled' when only the packaging has been made of recycled material would be misleading, whereas specifically stating 'packaged in recycled material' would prevent customers from being misled.
 
The statement demonstrates that the Commission has been keen to ensure consumers are not deceived by representations regarding a products ethical background, notwithstanding there may not be any tangible difference in the physical quality of the goods.
 
On this basis, a claim that goods are manufactured by an “ethical” supply chain when little measures are taken to ensure this is the case could breach section 10.  

Misleading claims that a business’s standards have been approved by a third party organisation may well breach section 13(e) of the Fair Trading Act.  Section 13 provides:

No person shall, in trade, in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services,—

 
 (e) make a false or misleading representation that goods or services have any sponsorship, approval, endorsement, performance characteristics, accessories, uses, or benefits; or

 
The may be breached when a business uses a pseudo endorsement to represent that a particular ethical standard has been obtained.  In reality the standard may not have been obtained and the business may circumvent the requirements of a legitimate endorsement whilst cashing in on the market benefits as if the real endorsement has been obtained. 

Liability under s 13(e) was considered in Commerce Commission v Ecoworld New Zealand Limited10.  The defendant had made representations regarding water purifying devices.  The representations were, in part, about the science involved in the water purification process and that the devices had been approved by a particular laboratory.  The science was later proved to be disreputable and the laboratory report did not support the devices.  The District Court held that section 13(e) had been breached.

Similarly in Flight Centre (NZ) Ltd v Registrar of Companies,11 Flight Centre (NZ) Ltd complained against Rotorua Flight Centre Ltd.  The High Court held that it was quite arguable that the trading name of Rotorua Flight Centre suggested an affiliation with Flight Centre (NZ) Ltd when there was none.

In a recent instance, the Commerce Commission investigated a catering business that claimed to be Wellington's only registered sustainable catering company, when no such registration existed.  The Commission also found the business to be substituting non-organic for named organic products in some instances. As a result of the Commission's investigation, the company changed its claims on its website and in its marketing and undertook to comply with the Act in the future. The case attracted considerable media interest resulting in bad publicity for the business.12

Recommended Principles

In light of the foregoing discussion, any claims to be an ethical or socially responsible business should conform to the following principles.
  • All claims should be substantiated.  In discussing good practice to environmental claims, the Commerce Commission has placed great emphasis on the need for businesses to be able to substantiate the claims they make.13 As noted, ethical and responsible business practices remain an subjective and ambiguous area, at least until the Commerce Commission provides further guidance.  Nevertheless, the most obvious way for businesses to avoid accusations that sections 10 and 13 of the Fair Trading Act have been breached is to have readily accessible and accurate information on how the product marketed can be described as ethical or similar.
  • Avoid vague and general terms.  Bald claims to be "ethical" and "responsible" are likely to attract criticism from the Commerce Commission on the grounds that such claims are too vague and therefore misleading.  Businesses need to be able to point to specific aspects of their operations whether ethical or responsible conduct can be seen.  It is also important to note that sections 10 and 13 of the Fair Trading Act refer to misleading conduct specifically in relation to goods.  It will therefore be important for businesses to particularise any claims to the production of the goods in question.  The Commerce Commission has previously stated that visuals and pictures may also be misleading.  This can apply equally when pictures are used that represent the production process of the goods.  Businesses should ensure that any pictures used accurately depict the production process and the workforce that produces them.
  • Do not make representations that give false impressions of third party certification.  When labels and slogans are used on products, care must be taken to ensure those labels do not create the impression that those goods have been certified by an independent third party.  Dole's use of the "Ethical Choice" label arguably suffered from this problem and therefore was criticised by the Commerce Commission. 
  • When third party certifications are used, they must be used cautiously.  As noted, many third party certifiers or labellers have emerged over recent years to commend goods that purportedly meet certain ethical or sustainable standards.  As the numbers of certifiers continue to grow, it is reasonable to assume that different certifications based on different standards will emerge, meaning some certifiers are more reputable than others.  Consequently the use of third party labels can mislead consumers.  Businesses will do well to seek certification from established and reputable certifiers.  It would assist if the Commerce Commission was able to compile a database of reputable certifiers and specify what criteria qualifies a reputable certifier.  Good practice will probably require businesses to provide information to consumers, such as on the goods or via a website, on the nature of the certification and the basis on which it has been awarded. 
Conclusion

It is likely that the Commerce Commission will give greater attention to purported ethical marketing in the future.  The case of Dole's use of the "Ethical Choice" labels stands as a good example of when such claims will be scrutinised.  It will assist businesses if the Commission is able to provide further guidance on marketing based on social and ethical responsibility to provide some clarity in an inherently ambiguous area.  Until that time, it will be prudent for legal advisers to give cautious advice to clients. 


1 Dole, "Corporate Responsibility & Sustainability", http://www.dolenz.co.nz/social/.
2 Oxfam New Zealand, "Are Dole Bananas Really the "Ethical Choice", (27 May 2013) http://www.oxfam.org.nz/news/are-dole-bananas-really-ethical-choice 
3 Ibid.
4 Commerce Commission Communique, Greenwashing in the Spotlight, Issue 16: July 2008.
5 Commerce Commission, Guidelines for Carbon Claims, July 2009.
6 Raewyn Clark, “Green Marketing”, [2008] NZLJ 439 and 440.
7
 Ibid, at 440.
8 (1989) 3 TCLR 349 (HC).
9
 Commerce Commission, "Environmental Claims", http://www.comcom.govt.nz/environmental-claims/.
10 DC Hamilton, CRI-2003-019-2195731/5/05, 31 May 2005.
11 (1994) 6 TCLR 287 (HC), 7 NZCLC 260,612 (HC).
12 See Commerce Commission, Environmental Claims, 2009,  http://www.comcom.govt.nz/environmental-claims/
13 Ibid, at pages 4 and 8.
Download article in PDF format



 Security code

Wynn Williams Christchurch
Level 5, Wynn Williams House, 47 Hereford Street, Christchurch 8013, New Zealand.
PO Box 4341, DX WX11179, Christchurch 8140.
+64 3 379 7622
+64 3 379 2467
Wynn Williams Auckland
Level 11, AIG Building, 41 Shortland Street, Auckland 1010, New Zealand.
PO Box 2401, Shortland Street, Auckland 1140.
+64 9 300 2600
+64 9 300 2609
Top

This page is best viewed in an up-to-date web browser with stylesheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so. The latest version of Firefox, Safari or Google Chrome will work best if you're after a new browser.