New threats to online retailers

As more and more companies sell things online, especially to far-flung customers, it can be difficult to keep track of the ever-changing legal rules that apply. Here’s a look at just some of the issues on the horizon that online retailers should be aware of:

Is your website accessible to the disabled? You might be surprised at the idea that the federal Americans With Disabilities Act applies to online stores, but the U.S. Department of Justice has taken the position that it does, and is planning to issue rules soon for how retailers should comply.

It’s likely the government will soon require retail websites to do some or all of the following:

  • Make sure web pages are compatible with current user tools for the disabled, such as machines that convert text to speech;
  • Provide text equivalents for all visual and audio data, so blind and deaf users can understand the information;
  • Make all functionality available from a keyboard; and
  • Avoid flashing images or anything else that can trigger seizures.

There have already been some notable lawsuits for non-compliant websites. For instance, the National Federation of the Blind settled a claim against the Target retail chain for $9.7 million. And the Justice Department brought claims against tax preparer H&R Block and Internet grocer Peapod that resulted in major changes to the companies’ web operations.

Many such suits are being filed by advocates for the disabled. A single blind man in Pennsylvania has sued some 35 banks, as well as dozens of retailers including Foot Locker, Brooks Brothers, Office Depot, and the Hard Rock Café.

Are your sale prices really sale prices? It’s not uncommon for online sellers to offer sale prices and show a discount from a regular, “valued at,” or manufacturer’s list price. But you can be in big trouble if you can’t show that the item actually sells at a different price.

Joseph D’Aversa bought two sweaters online from J.Crew that were promoted as 30% off the “valued at” price. He later brought a class action under a state consumer protection law, claiming that the sweaters were never actually sold at the higher price because there was always a deal.

For instance, after the 30%-off sale ended, there was an “up to 50% off” sale, an “extra 30% off sale,” and then a promotion where customers could enter a discount code. In each case, D’Aversa claimed, the sweaters ended up being sold at the exact same price.

The Justice girls’ fashion chain recently agreed to pay more than $50 million to settle a similar class action, in which shoppers claimed that goods were advertised at 40% off but were never sold at a higher price.

The Federal Trade Commission has warned online retailers that they can claim a product is “on sale” only if it was offered to the public at a higher price in the regular course of business for a reasonable period of time in the recent past. The FTC also noted that “list prices” and “manufacturer’s suggested retail prices” are often abused, and it’s no defense to compare your price to a “list” price unless the product was actually regularly offered at the higher price.

California has particularly strict laws against “phantom markdowns,” which is important because even an online business that isn’t located in California could potentially be sued under California law if it sells to consumers there.

‘Terms of service’ may be a problem. A law in New Jersey governing website terms of service could potentially trip up retailers.

Typically, retailers write broad terms of service that apply to the entire country, and then say that anything in the terms that violates a particular state’s law doesn’t apply in that state (in other words, it’s “void where prohibited”).

But New Jersey’s law says that consumers can bring a class action lawsuit merely if they’re offered illegal terms, and a “void where prohibited” clause won’t protect the retailer unless it also specifies exactly which terms are prohibited in New Jersey.

What’s more, consumers don’t have to prove that they relied on the terms or that they were harmed in any way. They can collect $100 per violation (which can add up quickly in a large class action), plus attorney fees and costs.

Do you charge sales tax correctly? Back in 1992, the U.S. Supreme Court decided that a company doesn’t have to charge sales tax to a buyer in a state unless the company has a physical presence in that state. So online retailers can generally avoid charging sales tax to out-of-state buyers.

But recently, South Dakota adopted a law designed to force the Supreme Court to revisit the issue. The law says that out-of-state retailers must charge sales tax to South Dakota customers if they have $100,000 in South Dakota sales or 200 separate South Dakota transactions in a year. The state has been sending notices to retailers telling them to comply.

Should you? Probably not. Unless the Supreme Court changes its mind, the law is unconstitutional, and the law itself suggests that retailers won’t be liable for retroactive taxes even if the Supreme Court upholds it.

But this is just one of many recent attempts by states to grab a share of online revenue, and it’s wise to review the legal landscape periodically and make sure you’re collecting sales tax correctly.

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