ACCC calls out franchisor non-compliance in 3 cases
On the back of the franchise parliamentary report in 2019 the Australian Competition and Consumer Commission identified the franchising sector as one of its 2020 Compliance and Enforcement Priorities.
So far the ACCC has been acting on its commitment to ensure compliance in franchising this year with three cases to note.
ACCC calls out franchisor non-compliance
Bob Jane Corporation Pty Ltd
In April 2020, the ACCC accepted a court enforceable undertaking from the company to comply with its obligations under the Franchising Code to give the required six months’ notice in writing to its franchisees if they intended to renew or extend their franchise agreements.
It also gave an undertaking that it would not terminate any franchise agreements operating under interim arrangements, without providing the six months written notice
GMH Australia NSC Pty Ltd
In May 2020, the ACCC obtained a commitment that GMH would negotiate in good faith with its dealers in relation to compensation for their withdrawal from the Australian market under threat of the ACCC taking court action.
Megasave Couriers Australia Pty Ltd and Gary Bourne
The company operates a national parcel courier service with more than 50 franchises across Australia. Several franchisees made complaints to the ACCC that they were misled by representations made by the franchisor and the ACCC has instigated action in the Federal Court this year.
The ACCC alleges the franchisor misled prospective franchisees with false or misleading promises of guaranteed minimum weekly payments and annual income if they purchased a Megasave franchise.
Why is this case important? The ACCC relied on information on the franchisor’s website, online ads, and its documents which represented that:
(a) from at least June 2019 to July 2020, the franchisees would receive guaranteed minimum weekly payments (in most cases $2000.00 per week), and
(b) from at least June 2019 to April 2020, that they would be guaranteed a minimum annual income of $91,000.00.
In late December 2019 Megasave introduced a new condition for payment of the minimum weekly payments, which they did not disclose to franchisees before coming on board.
This shows that making unilateral changes after the event exposes franchisors to some risk.
The ACCC also took action against the Director on the basis he was knowingly involved in the contraventions as he knew the company made or caused the company to make the representations, and personally made the representations to several potential franchisees.
What this means for franchisors
This shows the ACCC is not only enforcing the Franchising Code compliance obligations but also in certain cases the obligations of franchisors under the ACL provisions.
Further, the ACCC can and will, as in the Megasave case, where it affects many franchisees in the same system take action against a company for breach of the broader ACL provisions.
The ACCC will generally advise franchisees to pursue their own legal rights at their own cost if it does not appear to be a systemic issue of breach by a franchisor.
Many franchisees cannot of course afford to do take their own legal action due to the cost and delay in court proceedings.
The ACCC acted in the Megasave case due to the volume of franchisee complaints and the clear evidence available seeking pecuniary penalties, injunctions, compensation for franchisees and an order for disqualification of Gary Bourne as a director.