ACCC triumph is a win for all franchisees and a warning to franchisors

The ACCC has fought and won on behalf of 55 franchisees of Allphones who, at the hands of their franchisor, endured some of the worst bullying and unconscionable conduct that the ACCC says it has ever encountered.  Allphones has been ordered (by consent) to pay $3 million in damages to their franchisees.

Legal issues:

• Unconscionable conduct that was “systemic and prolonged” and consisted of:
  • pressuring franchisees to sell, transfer or terminate their franchise by withholding stock
  • stopping the franchisees’ income while insisting the franchisees bank daily takings and meet rent and wages obligations
  • threatening to issue breach notices leading to termination
• Misleading and deceptive conduct by representing that the franchise system was like ‘a true partnership’ where they shared profit and assuring franchisees that Allphones would use its bargaining power to the benefit, of franchisees when, in fact they negotiated and did not disclose commissions and bonuses from suppliers and altered carriers’ documents to disguise charges
• Breaches of the Franchising Code of Conduct (Code), including failure to provide compliant disclosure documents

Commercial Considerations

• Franchisors must be very careful when they attempt to exit franchisees from system that they do not engage in conduct that is tantamount to unconscionable conduct or bullying tactics
• Franchisors must ensure that representations made by their franchisee recruitment personnel and others to induce franchisees to enter into a franchise agreement are true and that the Franchisor’s conduct and processes and procedures are in line with such representations

MST Recommendations

For Franchisees:

• Seek legal advice before signing documents to renew or terminate a franchise agreement, where that document releases the franchisor for past breaches of the Code or the franchise agreement

For Franchisors:

• Do not withhold income from franchisees
• Disclose all rebates and financial benefits received from suppliers as a result of suppliers’ trade with the franchisees and indicate whether such rebates will be shared directly or indirectly with franchisees
• Seek advice before issuing breach notices or threatening to issue breach notices to franchisees
• Do not assume that the ACCC will not be interested in what your franchisees have to say

It is essential that franchisors and franchisees understand their rights and obligations under the Code.  Contact one of our franchising lawyers if you need assistance.

Author: Louise Wolf