11 Most Common eCommerce & Online Business Laws 2020
Whether you are Starting, Building, or Growing an online website, ebay or etsy store, there are some important ecommerce laws you should be aware of. Your website is a window to your online business and such, it should appropriately reflect your product or services. This article will comprehensively cover the 11 most common legal obligations as an eCommerce website owner. We will be answering all your questions, and from time to time we will revise and/or add more topics to this list for your reference. Here are the main 11 legal obligations both you and your online/eCommerce startup need to follow. Here is your list of the most relevant eCommerce laws that you should be aware of in Canada & America.
1. Your eCommerce Website - “Terms of Service”, “Terms of Reference” and/or “Privacy policy” Laws
The goal is to have a well optimized website that has a user-friendly interface. This is important because you want your users to browser through your pages freely without spamming them. Having your “terms of service”, “Terms of Reference” and/or “Privacy policy” visible is your legal obligation. Users need to understand what the general rules are for using your website and what your position is on your products or services. Also, these are used to explain what they can expect from browsing your online store.
Your Website should clearly state your stance on all it products, services, and or written text. These include - functions, performance, descriptions, questions, reviews, etc..( video, images, music or text referred as components of design).
Hint: If you are a drop shipping website your MUST declare it in your terms of service! You cannot hide behind your screen and pretend you own the products or brand.
Some other important things to note are; your website should outline clear contact information as to who to contact if the you have any questions. Similarly your contact information should be posted so users can notify you if there is anything wrong grammatically or legally. This allows transparency and the ability to make right even in situations where you have had unintentional misrepresentation.
2. eCommerce Taxes:
Now let's talk about ecommerce taxes in Canada and USA.
Question: have you ever noticed that you pay taxes on certain online purchases but not others?
The general rule of thumb is; if an online business has a physical presence in a state or province, its sales taxes are required by law to collect. These include state, provincial, and/or federal taxes on applicable goods and services. The taxes collected from the customer on behalf of the merchant are to be paid back to the government based on the applicable tax rate in your region. This means you will pay taxes for your business operations and pay taxes on your personal payroll from your business. (This option is best suited for online businesses generating Net $30,000 yearly).
If your website or business does not have a business license or physical location (drop shipping), you do not have to charge state, provincial or federal sales tax to your customers. However, you as a merchant are responsible for declaring your income (Net income) and pay taxes on it personally (personal income taxes).
*** These rules are applicable 95% of the time, please check with your local government for specific rules ***
3. eCommerce Legal Agreements (Click-wrap and Browser wrap agreements)
You've almost certainly entered into contractual agreements once in your life! Whether you realize it or not, an electronic contract is a binding agreement by means of a computer or any other electronic or automatic technology. The prefect example we most commonly see is, opting into email subscriptions. Similarly, many online merchants/ e commerce stores enter into contracts with customers in which the merchant agrees to provide a product and/or service in exchange for the customers payment. Both parties can even agree to the transaction using an e-signature or capcta
There are typically two types of online contracts - Click-wrap and Browser wrap agreements
Click wrap agreements require the user to affirmatively click on a box from your website. By doing this they are acknowledging and agreeing to the Terms of Service. (These are set out by you) which are often available in a scrolling text box before the user is allowed to proceed
Browser wrap agreements have a hyperlink “term of use” that are typically found on a separate web page which the user does not have to visit to continue using the website or its services. Brower Wrap Agreements are terms that usually involve an exchange of rights and obligations between a website owner and users. Often times, disputes arise over the enforceability of such agreements. The enforceability of these agreements turns on whether the party had adequately provided a notice of the terms of the agreement before the sale of a good or service. Generally courts have declined to enforce browser wrap agreements but a routinely upheld clip wrap agreements.
4. eCommerce Advertising Laws:
Advertisements are completely legal to engage with (Facebook, instagram, google, PPC, Etc). However, false or misleading ads are prohibited. Ads that promote discrimination or other illegal activities, illegal websites, or get rich quick schemes are illegal. These types of Ads are actually punishable by companies such as Facebook, Amazon, and Google AdWords. Using Ads with illegal products or services are illegal: for example, in 2016 the FBI shut down a website which was used as an online market for selling and buying illegal drugs.
Most federal laws globally (Canada & USA) places some limits on marketing via electronic communications. This includes, email, texts messages, and phone calls that are unsolicited. If you're a business that uses email or phone calls to advertise, you need to give people the option to opting out of your solicitations otherwise you could face steep fines for spam. (This is due to the emergence of overseas duct cleaning company phone calls and spamy email marketing)
5. Ecommerce Data Collection Laws
Data protection is one of the fastest growing legal fields in eCommerce. It is legal to collect and store personal information about your customers and website visitors with their consent. This includes their name, address, billing information, email, and phone number. You may use this information for your own personal website, but you are not allowed to sell this information to other parties in the similar niche.
This information can only be transfers over to a new business with consent from your customers or visitors. Similarly you must always offer your contacts the opportunity to opt out of data collection or subscriptions. Websites are forbidden from collecting any personal information from anyone under the age of 13. Lastly, online businesses, drop shippers, and other merchants must notify consumers when their personal information is stolen or sold in a business ownership transfer.
6. Reviews: Legal vs. Illegal Online Reviews
Reviews are the bread and butter of any business. From the consumer side, North American (Canada & USA) consumers are generally free to give businesses negative reviews online. These types of reviews are protected under the First Amendment and/or Free Speech. However, a court can find a reviewer guilty of defamation of a business if they post or make an incorrect accusation that seriously damages the business's reputation. Freedom of speech typically boils down to whether someone is expressing their opinion, or asserting a fact.
It is illegal to leave your competition a bad review or fake comments on Google, Facebook or Instagram.
Businesses historically have tried to sneakily insert clauses into their Terms of Service that they believe will somehow make them immune to bad reviews. In 2017 federal law made such clauses unenforceable.
Antitrust laws have been around in Canada for over a century but they are becoming a big legal issue. In the Internet age: Google, Apple, Facebook, and Amazon have recruited a tremendous amount of power and influence over their industries. This means social media marketing has become more important then ever!
7. eCommerce Online Sales Law.
To be clear… it is completely legal to offer deals on your website. However, it is not legal to not follow through on your deals or mislead your customers as to the perceived value or expected delivery.
When understanding any type of deal advertisement, we must first look at:
What is an online contract?
A legally binding online agreement consists of the following 4 main elements - an offer and acceptance, consideration, and the capacity to enter into the contract freely. The enforceability of electronic contracts generally requires: sufficient notice of terms.
A product or service for sale… at a price…. that you will receive in X amount of time… that you agree to exchanging money in return for freely and without pressure.
The golden rule is, be super conservative on your shipping times when drop shipping. Credit card companies have historically seen having a product arrive late as a breach of contract.
Not following these guidelines can lead to either legal ramification from customers, creditors, or the BBB (Better Business Bureau).
In 2019 Chargeback rates from misleading deals or late delivery increased by 42% from the previous year.
Small ecommerce and online stores don’t have enough resources to take on large credit card companies for chargebacks. For this, reason we strongly advise against using too good to be true marketing or misleading shipping times.
Establish the validity of an online transaction either by producing a document or record in writing of your contracts with customers through the recording and retaining of all the necessary information in electronic form.
8. Should you have a legal Incorporation or business for your online business?
If you are an individual who owns a drop shipping company, it is in your best interest to open an LLC or INC business. This means that if any legal issues arise you are not personally on the hook for the products. The law will consider any purchases and selling activity related to your products or services to be by you personally. Which means you cannot claim your right in case of any fraud and corruption.
Hint:
If you operate multiple eCommerce websites through the same LLC or INC. When one of them get sued, you risk losing the money you made from all of them.
It is in your best interested to have separate business once your store begins to make over 30K (As a general rule of thumb)
9. Trademark eCommerce Law
Not having a trademark is one of the most common legal issues in the field of e-commerce. Since a trademark can be your company’s logo and/or symbol, it ultimately is the face of your business online. It is in your best interest (If you have a proprietary product or brand) to protect your name. If you don’t secure it, you risk the chance of someone using your brand for Internet leverage to grow their business.
The only thing to consider is; should someone use your trademark for advertising, it is your responsibility to enforce your ownership. This means it will cost you money from your pocket to go after each and ever person who infringes on your trademark. Also, it is important to mention that, not all Trademarks are enforceable across boarders.
10. Copyright Protection Law - eCommerce
When publishing content for your e-commerce website, using content of any other company or business can lead to legal issues. Although you may think the Internet is a free resource, taking someone’s item descriptions or plagiarizing content such as pictures is illegal. There are many free resources that offer royalty free resources for your use. You may use these sites content for free for creating web content for your eCommerce site.
Bottom-line…. be original!
Like Trademarks, the big thing to consider is; should someone use your copyright for advertising, it is your responsibility to enforces your ownership. This means it will cost you money from your pocket to go after each and every person who infringes on your copyright. Also, it is important to mention that not all Copyrights are enforceable across boarders.
11. eCommerce Return Policies Law
Ensure you have a clear and concise return policy…. Repeat - Ensure you have a clear and concise return policy
Clearly outlining your exact return policy is important when dealing with returns or shipping issues. Something as simple as adding shipping insurance can be a safeguard from damaged products.
The consumer protection law says that all customers have the right to return their product after 7 days of delivery. This means you legally have to take back the product and return all of the customer’s money once received. This can leave your business out money and the cost of the product when it comes to returns.
The catch is; you are allowed to have a restocking fee no greater then 20% and/or return shipping can be the responsibility of the customer. Also you can deny returns if your product is listed as final sale as is! (Although you can’t false advertise the product)
***** These clauses must be part of your return and exchange policy before the customer purchases & the customer must agree to them at checkout *****
eCommerce, Online Stores and Startup businesses are increasingly interacting with people from all over the world. Because of this, it is important that they be aware of the current and emerging eCommerce laws for online stores. As the laws continue to change with the emergence of new legal precedence, all business owners must stay up to date or they my find themselves in an unplanned legal issue.
Have a question? Join our online community and we would be happy to answer them. Please Email us at info@myecommercestartup.com
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