The employment of various dishonest, fraudulent, or unethical ways to attract business is referred to as unfair trade practices. Misrepresentation, false advertising or representation of a good or service, tied selling, fraudulent free prize or gift offers, deceptive pricing, and noncompliance with manufacturing standards are all examples of unfair commercial practices. Such practices are regarded as illegal by statute under the Consumer Protection Law, which provides customers with recourse in the form of compensation or punitive damages. Unfair trade practices are sometimes known as “deceptive trade practices” or “unfair business practices.”
Unfair trade practices are frequently observed in consumer purchases of goods and services, tenancy, insurance claims and settlements, and debt collection. The majority of states’ unfair trade practices acts were established between the 1960s and 1970s. Since then, numerous states have enacted similar legislation to prohibit unfair trade practices. Consumers who have been victimized should consult their state’s unfair trade practice statute to see whether they have a cause of action.
Unfair commercial practices are prohibited in the United States under Section 5(a) of the Federal Commercial Commission Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.”
It applies to all individuals engaged in commerce, including banks, and sets the legal standard for unfair trade practices, which may be deemed unfair, deceptive, or both. Below are lists of unfair and deceptive practices as per the rule:
An act is unfair when it meets the following criteria:
- It causes or is likely to cause substantial injury to consumers.
- It cannot be reasonably avoided by consumers.
- It is not outweighed by countervailing benefits to consumers or to the competition.
An act or practice is deceptive when it meets the following criteria:
- A representation, omission, or practice misleads or is likely to mislead the consumer.
- A consumer’s interpretation of the representation, omission, or practice is considered reasonable under the circumstances.
- The misleading representation, omission, or practice is material.
Examples of Unfair Trade Practices in Insurance
Unfair trade practices can happen in any industry but are significant enough to prompt the National Association of Insurance Commissioners (NAIC) to issue guidance related to the sale of insurance products. The NAIC defines unfair trade practices in the following ways:
- It misrepresents the benefits, advantages, conditions, or terms of any policy.
- It misrepresents the dividends or share of the surplus to be received on any policy.
- It makes a false or misleading statement as to the dividends or share of surplus previously paid on any policy.
- It is misleading or is a misrepresentation as to the financial condition of any insurer, or as to the legal reserve system upon which any life insurer operates.
- It uses any name or title of any policy or class of policies misrepresenting the true nature thereof.
- It is a misrepresentation, including any intentional misquote of the premium rate, for the purpose of inducing or tending to induce the purchase, lapse, forfeiture, exchange, conversion, or surrender of any policy.
- It is a misrepresentation for the purpose of effecting a pledge or assignment of or effecting a loan against any policy.
- It misrepresents any policy as being shares of stock.
The NAIC considers a deceptive trade practice to be any of the above acts coupled with the conditions below:
- It is committed flagrantly and in conscious disregard of the act or of any rules promulgated hereunder.
- It has been committed with such frequency to indicate a general business practice to engage in that type of conduct.
Business unethical behavior ranges from small victimless crimes to massive travesties that can harm a big number of people. A corporation cannot tolerate unethical behavior, whether it is stealing a pen, padding an expense report, lying to escape a penalty, or spewing poisonous chemicals into the air. A stringent ethics policy is essential for every company that wishes to keep its good reputation.
Theft at the Workplace
Theft at work comes in a variety of forms, and oftentimes employees do not view it as unethical behavior, believing no one gets hurt by the action. Employees take home office supplies, use business computers for personal tasks, pad expense accounts and abuse sick time or allotted personal days.
Unethical behavior also includes having another employee punch a time card, or not punching out for lunch hours or other nonapproved time off. Though these may seem like minor infractions, they eventually have an impact on the bottom line of the company, which then hurts all employees. Theft also affects employee morale and is disheartening to those who choose to behave ethically.
Gifts from Vendors
Businesses that buy from and sell products to other businesses are sometimes subject to unethical behavior. The practice of accepting gifts from a vendor in exchange for increased purchasing is not only unethical, it may have legal repercussions. The same can be said for offering a customer kickbacks to increase his purchasing habits.
Ethics policies often contain guidelines for giving or accepting gifts with vendors or other business associates, such as a cap on the value of the gift. Other businesses strictly forbid giving gifts or any other item with monetary value. This is a safeguard to prevent any perception of unethical behavior.
Bending the Rules
Bending the rules in a business situation is often the result of a psychological stimulus. If an employee is asked to perform an unethical task by a supervisor or manager, he may do it because his allegiance to authority is greater than his need to abide by the rules. Turning the other way to avoid trouble for another employee is still unethical, even though the motivation may be empathetic.
For example, knowing that a coworker is having issues outside work justifies watching him leave early each day without reporting it. Withholding information that can change an outcome also falls under the umbrella of unethical behavior, even if the perpetrator believes he is doing what is in the best interest of the business. For example, if a poor earnings report is withheld until after a stockholder meeting.
Environmental Impacts and Risks
Unethical behavior by companies, such as releasing pollutants into the air, can affect cities, towns, waterways and masses of people. Though accidents can occur, the release of harmful toxins into the environment due to lax safety standards, improper maintenance of equipment or other preventable reasons is unethical. If a business willingly continues production of a product knowing inherent environmental risks exist, it can certainly be categorized as unethical behavior.
Wages and Working Conditions
Other unethical practices include not paying workers a fair wage, employing children under the legal working age and unsafe or unsanitary working conditions. Any practices that are not in compliance with fair labor standards and federal working guidelines fall into this category.
Examples of Unethical Behavior
1. Taking Advantage of Misfortune
For example, companies that take advantage of disasters to increase prices are engaging in unethical behaviors. After a natural disaster, people need a wide variety of items to rebuild damaged homes. Tools such as electric generators and chainsaws are necessary when electricity has been knocked out and fallen trees have to be removed.
Unfortunately, sometimes companies will try to take advantage of this misfortune by increasing prices of much-needed good and services. Prices can go up by as much as two or three hundred percent. That is called price-gouging. Companies will often say that they must raise prices because transportation and labor fees increase after a crisis. However, many people find that hard to believe and there are local and federal laws against it.
2. Overbilling Clients
This is an example of unethical behavior that seems relatively harmless but can still result in going to prison.
In the legal profession, billing clients for more hours than you actually worked is considered a crime. In fact, in some cases, overbilling can reach the point of being a federal crime. For example, in the U.S., the penalty can be a fine of 10,000 USD per offense and could lead to incarceration. Losing the license to practice law is also a very real possibility.
Overbilling is not limited to the legal profession. In the healthcare industry, overbilling can involve charging for medical tests or treatments that never occurred. Building contractors can also be guilty of overbilling if they charge more for goods or services than was initially agreed upon.
Who knew there were so many types of lies?
Obviously, in most situations, lying is considered unethical and a form of Machiavellianism. The only exception is the white lie. This is the type of lie that is done to spare someone’s feelings. Certainly, this kind of lie is understandable, even acceptable.
The other lies, however, are not. Sure, there may exist extenuating circumstances. Some factors could make the lie understandable, even excusable. So, each situation needs to be considered on a case-by-case basis. Even then, there is likely to be disagreement among those involved.
A kickback doesn’t have to be in the form of money. It can take the form of giving a gift or providing a service as well. Just about anything that has value can be used as a kickback. For example, a pharmaceutical company might hold a seminar on a beautiful island resort. It invites selected government officials and provides free airfare and accommodation to each one for the weekend.
There is no doubt that the company is hoping to gain a contract or federal approval for one of their products. This is a classic example of a kickback.
5. Money Under the Table
Giving money under the table is probably one of the oldest tricks in the books. A bribe can be used for just about any nefarious endeavor, and probably has been.
The unfortunate thing is how difficult it can be to catch. After all, there aren’t going to be any electronic transactions between the two culprits. Law enforcement won’t be able to identify any plane or hotel reservations to match up. It’s just a simple “here’s some cash” maneuver.
6. Mistreatment of Animals
Fortunately, many countries have laws regarding these matters.
As society evolves and becomes more enlightened, other, more subtle forms of abuse have been identified. For example, raising poultry in tiny cages is standard practice in much of the industry. However, for a living creature to spend its entire life in a metal cage so small that it can barely move is flat-out cruel.
Animal rights groups have worked steadily to change these practices, and consumers have expressed their opinion through their pocketbooks. Today, more and more poultry farms are moving to “free-range” practices, which allows chickens to spend most of their days running around and wandering fields on sunny days.
7. Child Labor
Human rights organizations such as UNICEF have been working hard to stop child labor practices for decades. Although their efforts have helped, the problem is so pervasive that today, nearly 1 in 10 children worldwide are forced into child labor.
Several of the world’s most popular products benefit directly from child labor. So, if you like chocolate, use the software on your computer, own a smartphone, or wear clothes, there is a strong possibility that children have been involved in the production process at some point.
8. Oppressing Political Activism
Unfortunately, there are many countries that do not agree. Journalists or political activists are often silenced because they made their views public. The term “silenced” is a euphemism for what can really happen, such as being put in jail or even murdered.
Yes, that does sound preposterous in the 21st century, but it is the reality nonetheless. There are many examples available to prove this point, and you can see for yourself if you want; as long as you are in a country that allows an internet search on this topic, otherwise, be careful.
9. False Advertising
Companies have been making false claims about their products since the beginning of commercialism, and before. It used to be a rampant practice in the 19th century. Eventually, governments got involved and started passing legislation prohibiting misleading claims in advertising.
Now, some companies use clever techniques to avoid violating a narrow interpretation of the law. For example, in TV and print ads there will sometimes be very, very, very small print marked by an asterisk. That is where the company reveals that some claims in the ad might be exaggerated and “results may vary.”
It is a clever trick, and legal, but unethical nonetheless.
Among those social maladies is the ever-present gossiping. Spreading unsubstantiated information about a co-worker in an attempt to damage their reputation is as old as time itself. Even if the information is true, it is still unethical.
Gossiping creates an unpleasant organizational culture. It fosters an environment of mistrust among people that often need to work together for the company to succeed. Despite the myriad of troubles it creates, it is one of the biggest complaints that employees have about the office. Those that complain the most might be the biggest culprits.
By contrast, examples of prosocial behaviors in the workplace include cooperation, working in teams, asking for permission, and offering help.