Franchisors Beware – the ACCC means business!
The ACCC has obtained a penalty of $2,604,000 against a franchisor of a franchise system for breaches of the Franchising Code of Conduct (the Code) and Australian Consumer Law (ACL).
The action taken by the ACCC against the franchisor related to acting in breach of good faith and making false or misleading representations when dealing with potential franchisees.
The ACCC’s action against this well-known franchisor has sent a strong warning to all franchisors to meet all required disclosure obligations when recruiting potential franchisees in accordance with the Code (this is a mandatory industry code) and ACL. The ACCC has confirmed that they will be continuing to take enforcement action against any franchisors that breach the Code and the ACL.
Franchisor obligations when dealing with prospective franchisees, include:
Ensuring that no statements made are false or misleading in relation to:
- pricing of the franchise;
- how long the franchise has been operating for; and
- matters relating to the lease of business premises,
In addition, it is important for Franchisors to ensure that marketing funds are administered properly and in accordance with the code. In the above case, the franchisor failed to prepare the required marketing fund statements within required timeframes. Franchisors also need to be clear about what payments are refundable if the franchisee does not want to proceed with a franchise.
For potential franchisees, it is important you understand your rights in addition to undertaking your due diligence, such as obtaining disclosure documents, the proposed franchise agreement and ensuring that you are provided with a copy of the Code. What is critical, is that franchisee’s obtain legal advice concerning these documents and go into a franchise with their eyes wide open.
For further advice relating to your obligations as a Franchisor under the Code and the ACL or advice relating to your rights as a Franchisee under the Code and the ACL, please contact Michael Fetter or a member of our commercial law team.
