ACCC Takes Franchisor to the Cleaners – Round 2

By Jack Newton, Law Graduate, MST Lawyers

A franchisor has been ordered by the Federal Court to pay a pecuniary penalty of $500,000. Coverall Cleaning Concepts, a franchisor operating a commercial cleaning franchise in Victoria was, in an earlier Court judgment, found to have contravened the Australian Consumer Law (“ACL”) and the Franchising Code of Conduct (“Code”).

The Federal Court’s earlier judgment, handed down on 29 January 2015, examines the contravening conduct of Coverall and its sole director, and contains several other orders made against Coverall by the Court. There, the Court held that Coverall had made misleading representations about the amount two franchisees would earn, and had also failed to pay the franchisees for work undertaken by them, in breach of the ACL and the Code. You can find our blog post about the Federal Court’s earlier judgment at https://www.mst.com.au/accc-takes-franchisor-to-the-cleaners/

The latest judgment, handed down on 23 March 2015, deals with the pecuniary penalties sought by the ACCC against Coverall.  The Court imposed pecuniary penalties of $250,000 for each of the franchisees affected by Coverall’s contraventions.

The pecuniary penalties comprised  $150,000 for Coverall’s contravention of the ACL’s unconscionable conduct provisions, and a further $50,000 for Coverall’s contravention of the ACL’s provisions concerning misleading representations about profitability and risk.

The Court noted that the “structurally unequal relationship between franchisees and franchisors” meant that a large pecuniary penalty was justified, in order to deter other franchisors from exploiting franchisee vulnerability by acting unconscionably or providing misleading information as to profitability and risk.

Importantly the Court, in its earlier judgment, also declared both franchise agreements were void.

This serves as another reminder that the ACCC is taking a more active stance in its enforcement of the ACL and the Code. Franchisors must take steps to ensure that their conduct is entirely consistent with their obligations under the ACL and the Code.

For further information, please contact our Franchise Law team by email franchise@mst.com.au or by telephone +61 8540 0200.