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ACCC Takes Franchisor to the Cleaners

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On 29 January 2015, the Federal Court handed down judgement in the Coverall Cleaning Concepts case. The ACCC initiated proceedings earlier in 2014, claiming that Coverall engaged in misleading conduct and breached the Franchising Code of Conduct in relation to two of its franchisees.

Coverall had made representations to the franchisees that they would achieve specified earnings based on their investment in the franchised businesses. Coverall had also failed to pay the franchisees for work they had completed, in breach of the franchise agreements.

The Court held that Coverall engaged in misleading conduct and breached the Franchising Code of Conduct by providing earnings information that were not based on reasonable grounds. It further held that Coverall’s failure to pay the franchisees for work they had completed amounted to unconscionable conduct.

The Court ordered Coverall pay the franchisees compensation totalling approximately $22,000 as well as their franchise fees and payment for work completed.

With the introduction of penalties under the new Franchising Code of Conduct, it is important that franchisors take great care when giving earnings information to ensure these are based on reasonable grounds and keep in mind the obligation to act in good faith.

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