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Megasave Couriers to pay $1.9m, its director to pay $200,000 to franchisees for Misleading and Deceptive Conduct

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By Alicia Hill, Principal and Jacob Cripps, Law Clerk

The Australian Competition and Consumer Commission (‘ACCC’) initiated action against Megasave after receiving complaints that Megasave failed to pay their franchisees a promised minimum weekly payment (around $2,000) and annual salary (typically $91,000).

The Federal Court of Australia found that the broken promise meant that Megasave and its sole director, Gary Bourne engaged in misleading and deceptive conduct under the Australian Consumer Law (‘ACL’).

The Court ordered Megasave Couriers Pty Ltd (‘Megasave’) to pay with a $1.9 million to franchisees for misleading them. Megasave’s director, Gary Bourne was also ordered to pay $200,000 to franchisees.

Background:

Megasave is a parcel courier delivery business across Australia. A portion of its revenue is made by marketing and selling the courier services to potential franchisees. Megasave and Gary Bourne advertised that Franchisees get to own and operate a Megasave store in return for a guaranteed minimum weekly payment and annual income. After 30 complaints to the ACCC from Franchisees regarding underpayment of the minimum weekly payment and a non-liveable annual income, the ACCC launched an investigation into Megasave’s franchise agreements and dealings.

MST Lawyers wrote an article on this case on 17 July 2020 when the ACCC first initiated proceedings, which you can read here.

Findings:

The Federal Court of Australia found in favour of the ACCC causing a myriad of consequences for Megasave and Mr Bourne.

Megasave was ordered to:

  • Pay $1.9 million to franchisees for causing “significant stress”;
  • Pay $200,000 for costs to the ACCC;
  • Restrain, for a period of 5 years, from:
    • entering another franchisee agreement, unless Megasave provide the prospective franchisee a copy of the judgement at least 14 days prior to entering into an agreement;
    • making representations to potential franchisees in connection with the promotion of a franchise business that are false or misleading as to the earnings, profitability or risk of operating the franchise; and
    • representing to potential purchases of Megasave franchises that franchisees will receive guaranteed payments or a guaranteed annual income.

Mr Bourne, was also personally liable as he was knowingly involved in the misleading representations. He was ordered to:

  • be disqualified from managing any corporations for a period of 5 years;
  • Pay $120,000 to franchisees;
  • Pay $200,000 for costs;
  • Restrain, for a period of 5 years, from:
    • causing, permitting, authorising or aiding another franchisee agreement, unless Megasave provide the perspective franchisee a copy of the judgement at least 14 days prior to entering into an agreement;
    • making representations to potential franchisees in connection with the promotion of a franchise business that are false or misleading as to the earnings, profitability or risk of operating the franchise; and
    • representing to potential purchases of Megasave franchises that franchisees will receive guaranteed payments or a guaranteed annual income.

Key Take Aways:

This case highlights again the personal and business consequences of not following through on claims made about weekly and annual income to be earned through operating a franchise.

When promising to give franchisees benefits under a Franchise Agreement, franchisors need to ensure that every step possible is taken to ensure that those promises are fulfilled.

This is particularly important for directors who are knowingly involved in making and executing those promises. Not only has Megasave been ordered to pay damages, but Mr Bourne is now personally liable to pay franchisees and costs while being banned from operating other companies for 5 years.

The history of cases decided over time indicates that those who make representations about income and earnings need to have a reasonable basis for doing so and that steps are taken to fulfil the representations made. When this does not occur, there are now a number of decisions which indicate that the law will hold accountable, at increasingly larger cost, those who do not facilitate the outcome that was represented would occur.

If you are concerned about what you are saying to potential franchisees and whether it may constitute misleading and deceptive conduct  please contact Alicia Hill (03) 8450 0292 or Raynia Theodore (03) 8540 0242 of our office.