California's Unfair Competition Law: A Guide for Small Businesses
California’s Unfair Competition Law (UCL) is a California statute that prohibits unlawful, unfair, or fraudulent business practices. It allows certain private plaintiffs and public prosecutors to ask courts to stop improper conduct and, in some cases, recover restitution. At the same time, the UCL’s broad scope can expose small businesses to costly claims, even over conduct that was not intended to mislead.
Understanding the UCL and what constitutes a violation can help small businesses avoid lawsuits and potentially costly legal penalties for deceptive practices. The experienced business litigation lawyers with Cutter Law can help your business take action to prevent UCL violations and ensure compliance with California’s consumer protection laws.
- California’s Unfair Competition Law bans “unlawful, unfair, or fraudulent” business practices, providing a legal cause of action to hold unethical companies accountable.
- The UCL’s language covers a broad range of activities, including false advertising, generally deceptive behavior, and anything considered illegal under other California laws.
- Small businesses may face UCL claims for completely unintentional actions, so proactively ensuring compliance with the law is the best way to avoid liability.
- Cutter Law has the knowledge and experience in California business litigation to help your small business defend against UCL claims and prevent future violations.
What California’s Unfair Competition Law Covers
The UCL prohibits any “unlawful, unfair, or fraudulent business act or practice.” The law’s broad definition enables consumers, business owners, and regulators to take legal action against a company for a variety of actions considered illegal, underhanded, or dishonest.
The Three Prongs of the UCL
Each of the elements of an illegal action under the UCL can be considered its own “prong.” Anything that falls under at least one of these prongs can lead to a UCL claim:
- Unlawful: A UCL claim can be based on conduct that violates another law.
- Unfair: The practice may be considered unfair when it causes substantial harm, gives the business an improper advantage, or offends established public policy.
- Fraudulent: The practice is likely to mislead or deceive a reasonable consumer.
How the Law Relates to California’s False Advertising Law
The UCL also defines an unfair business practice as anything that falls under the False Advertising Act, which prohibits deceptive marketing. This applies both to ads the party knew or should have known were misleading, and to advertising sales it had no intention of honoring.
For example, if a grocery store advertises a product at a specific price, it could face liability under California’s False Advertising Law and the UCL if the promotion is misleading or the store does not honor the offer as advertised, subject to any clear and lawful limitations disclosed in the ad. Because the same conduct can implicate both laws, small businesses should take care to ensure their advertising is accurate, transparent, and consistently honored.
Why the UCL Matters for California Small Businesses
UCL violations can expose small businesses to private lawsuits from consumers, as well as enforcement actions from the state government.
Taking proactive steps to comply with the UCL can help a small business save time, money, and resources that might otherwise be spent responding to a lawsuit and its potential consequences, such as court-ordered injunctions and restitution.
Common Compliance Pitfalls for Small Businesses
Not all UCL violations are blatantly illegal or even intentional. Many small businesses, caught up in the challenge of outperforming competitors and staying afloat, may not realize their actions fall into a gray area that consumers or other businesses could consider unethical under the UCL. Examples of common violations by small businesses include:
- Misleading advertising: Small businesses may not intend to deceive customers when marketing their products, but vague or even slightly exaggerated claims could run afoul of the False Advertising Act. A local restaurant sarcastically promoting impossible health benefits for its meals could become an unintentional violation if consumers don’t realize its facetious intent.
- Review manipulation: Many businesses might not know that using fake or manipulated customer reviews can be considered illegal. The California Attorney General participated in a lawsuit against a room-renting app over thousands of allegedly fake positive reviews bought by the platform, resulting in a $1.6 million settlement in 2023.
- Hidden fees: Charging a fee to cancel a service, change a plan, or access a feature of a product could be considered an unfair business practice if it’s not prominently disclosed to customers.
A knowledgeable attorney can help your business stay up to date on California’s evolving business regulations, keeping you one step ahead of any potential inadvertent violations.
Responding to an Unfair Competition Demand Letter or Lawsuit
If you’ve been notified of a potential UCL claim as a small business, it’s best to seek legal help from an experienced California business litigation attorney as soon as possible. It’s possible to avoid or minimize the consequences of a UCL claim, but it’s important to act quickly.
Immediate Steps To Take
- Review the claim: Make sure you understand the substance of the accusations, as well as other important details.
- Preserve key evidence: Gather records and communications related to the claim and save copies of them.
- Talk to a lawyer: Your attorney can advise you on the validity of the claims against your business and recommend next steps.
Legal Remedies and Penalties
Small businesses can face two potential penalties for UCL violations. A court can issue an injunction demanding that the business stop whatever behavior prompted the UCL claim. Claimants can also seek restitution for economic losses suffered by the victim or financial gains unjustly obtained by the defendant.
When You’re the Victim
The UCL can also give small businesses a way to challenge unethical competitors or vendors when their conduct involves unlawful, unfair, or deceptive practices that cause harm. For example, a small business may have a claim if a competitor runs misleading ads about its own services or falsely disparages the business to customers in a way that violates California law and diverts sales.
Preventive Steps and Best Practices
The best way to avoid UCL lawsuits is to take proactive measures to prevent any potential violations. Some best practices you can enact to protect your small business include:
- Review your policies regularly. Have a lawyer look over your company procedures to ensure compliance with the latest legal guidelines.
- Train your employees in compliance. Make sure your workers know how to avoid unfair business practices and where to report any UCL violations they uncover.
- Be proactive in handling disputes. Having a system for responding to customer complaints quickly can help you identify and fix potential violations early.
- Be mindful of your competition. Emphasizing your strengths and your competitors’ weaknesses may make for effective advertising, but it can cross the line into unfair competition if you go too far.
How Cutter Law Helps California Small Businesses Stay Compliant
Our team is intimately familiar with California’s local business and consumer laws.
We have extensive experience providing strong legal advocacy to small businesses, including advising companies on compliance, assisting with dispute resolution, and defending against UCL claims.
As a family-owned business, every case is personal for us. When you work with us, our entire firm collaborates to get you the best result possible. We don’t charge any upfront fees for our services, and you won’t pay us anything unless you win your case.
Family-owned, California-based, and client-focused. Contact us online or call (888) 285-3333 today to schedule a free consultation with our attorneys.
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