Contracts: best practices and types
Ensure your contracts are in writing, clear and applicable to your type of business.
The Consumer Protection Act regulates most consumer-to-business transactions.
Descriptive transcript: Introduction to the Consumer Protection Act
Get it in writing
A contract is a written or verbal agreement that governs business transactions with customers.
We recommend that businesses always use written contracts since, if there is a dispute, it is hard to prove exactly what the parties had agreed to in a verbal contract.
All agreements covered by the Consumer Protection Act must be in writing, including:
- agreements for goods and services costing more than $50
- future performance agreements
- personal development services agreements
Make it clear and specific
It’s important to make sure your contracts are clear and include the required information for your business, as detailed in the act. If you don’t include the required information in your contracts you could create liabilities for your business including:
- cancelled contracts
- refunds to consumers
- misunderstandings
- consumer complaints
- bad reputation
- legal action
- investigation
- enforcement action
Keep in mind:
- all parts of a contract should be clear, prominent and understandable (e.g., do not use a font that is difficult or too small to read)
- the Consumer Protection Act requires that any reasonable ambiguity in a consumer agreement must be interpreted in favour of the consumer
“Under the table” transactions put your business at risk
It may seem like a money-saving idea to accept cash payments from consumers “under the table” –meaning you don’t use contracts and/or do not charge taxes.
This is against the law and not a smart business practice – it leaves both you and the consumer exposed and unprotected.
Beyond the consumer protection risks, if a consumer complains and tax authorities investigate you’ll need documented proof (e.g., a receipt) that you’ve followed tax laws.
Types of contracts
The Consumer Protection Act sets out requirements for various types of contracts. The type of contract that applies to your business depends on the goods or services you offer or the nature of your business. More than one type of contract may apply.
Direct agreements
If you sell goods or services on the road, and are going to a customer’s home to sign a contract, you may need to use a direct agreement. This is a consumer agreement that is negotiated or concluded in person, at a place other than a place of business. Direct agreements must include a cooling off period, during which the consumer can cancel the contract without any reason.
Almost all goods and services that are sold in a consumer’s home require a direct agreement. This includes contracts for water heaters, home renovations and lawn maintenance services.
Motor vehicle repair agreements
If you own a garage that fixes cars or other vehicles driven on Ontario roads, you will need to use a motor vehicle repair agreement and follow certain procedures.
Personal development services agreements
Personal development services agreements are usually used by businesses that offer:
- training, advice or instruction in areas like health, fitness, weight loss and nutrition (the most common type of personal development services agreement is a gym membership agreement)
- modelling and talent services, including related photo shoots
- facilities for or instruction in martial arts, sports, dance or similar activities
Note: The act does not cover all personal development services agreements. The rules don’t apply if you are not required to pay in advance.
Internet agreements
If you sell goods or services over the internet, you may need to use an internet agreement, which includes all transactions on the internet, as long as either the business or the consumer is located in Ontario when the transaction takes place.
Internet transactions have specific requirements that do not apply to other types of agreements. For example, before entering an internet agreement, consumers must have a clear opportunity to accept or decline, and to correct any errors. If you don’t follow these rules, the consumer can cancel the agreement within seven days.
Remote agreements
If you offer goods and services over the phone or through the mail, you may need to use a remote agreement, which applies when the consumer and supplier are not physically together.
Typical services using remote agreements include:
- newspaper subscriptions
- theatre tickets
- cable TV subscriptions
With a remote agreement, you must:
- give the consumer required information including:
- a fair and accurate description of the good(s) and/or service(s) you will provide
- the total amount the consumer must pay
- terms and method of payment
- give the consumer a written copy of the contract either within 30 days of billing or 60 days after the date of the agreement, whichever is earlier
Future performance agreements
If your customer usually has to wait to get their goods or services, with a delivery date promised in the future, all at once or on a regular basis, you may need to use a future performance agreement. Examples of services using this type of agreement would be delivering an item to a consumer’s home after they made the purchase in-store, or services such as maintenance, cleaning or internet.