The Australian Competition and Consumer Commission has taken more aggressive action against rogue franchisors in recent months. This is something we haven’t really seen from the regulator in the past.
In an announcement made earlier this month, the ACCC issued a special warning to food franchisors who will be targeted in the next round of Franchising Code compliance checks.
Under the Franchising Code, franchisors must disclose certain information such as certain set up and operating costs, information about supply restrictions and site or territory history.
This information is given to prospective franchisees to assist them in making a reasonably informed decision before the purchase of a business which may reduce risk of substantial harm to the franchisee.
Through this initiative, the ACCC will assess important documents that franchisors provide to potential franchisees to check that all information is clearly and accurately disclosed.
The ACCC will specifically focus on the following mandatory disclosure areas:
• Disclosure of certain costs of establishing and operating a franchise business
• Disclosure of limitations on where franchisees can buy goods and services
• Disclosure of whether a franchisor receives rebates or benefits when franchisees purchase from certain suppliers
• Disclosure of site or territory history
• Disclosure of cooling off costs
• Disclosure of current and former franchisee contact details
This information should be disclosed through the disclosure document at least 14 days prior to any agreement being entered into or non-refundable money being paid. The format for disclosure documents is set out in the Code.
In line with its Compliance & Enforcement policy, the ACCC may consider enforcement action against franchisors where it amounts to a breach of the Franchising Code or the Australian Consumer Law.
The ACCC has successfully prosecuted Geowash, a former hand car wash and detailing franchisor, for acting unconscionably, making false or misleading representations, and failing to act in good faith in breach of the Franchising Code of Conduct.
The Court found that Geowash made misleading representations on its website by:
• suggesting that prospective franchisees could make monthly average revenue of $70,216 and gross average profit of $30,439, when it had no reasonable basis for this claim; and
• representing that it had a commercial relationship or affiliation with major corporate entities including Nissan, Kia, Renault, Audi, Emirates, Shell, Hertz, Holden, Ikea and Thrifty, when it did not.
Franchisors in the food industry should carefully review their current disclosure documents to ensure that they comply with the requirements of the Code, particularly in relation to set up, running costs and forecast revenue and profitability of the franchise business.
Our franchise legal team is available to assist with any of these matters.