The Australian Competition and Consumer Commission (ACCC) has revealed the key findings of its recent compliance checks of a sample of franchisors in the food services sector. The ACCC investigated 12 separate food services industry franchisors.
The report outlines the following issues.
8/12 of the franchisors made it difficult to contact former franchisees
The Franchising Code of Conduct (the Code) requires disclosure of the available contact details of each franchisee who has left the system in the last three financial years, unless the franchisee has requested that its details not be disclosed. The Code prohibits franchisors from influencing a franchisee in relation to provision of such a request.
The ACCC commentary suggests personal telephone and email addresses provide the best contact method and questioned the utility of providing postal addresses. It commented that providing the former franchise location was unlikely to comply with the Code.
7/12 of the franchisors did not adequately disclose what essential goods were subject to supply restrictions
The Code requires disclosure of:
- details of restrictions on acquisition of goods or services by the franchisee;
- suppliers which provide rebates to the franchisor or its associate from supply of goods or services to franchisees; and
- whether any rebates are shared with franchisees.
Most of the franchisors had supplier restrictions, did not share rebates and could set maximum prices
The ACCC acknowledged these arrangements are generally permitted. The commentary appeared to be directed to the obligations of franchisors to provide adequate disclosure and ensure that the terms of the franchise agreement relating to these issues are not unfair contract terms regulated by the Australian Consumer Law.
4/12 of the franchisors aren’t sufficiently disclosing key unavoidable costs such as wages, rent or inventory
The Code requires disclosure of costs of the franchised business which are within the knowledge or control of, or reasonably foreseeable by, the franchisor.
The ACCC criticised the failure of franchisors to provide figures for labour costs and suggested including market (rather than franchise specific) lease costs was insufficient. The ACCC also warned franchisors of potential claims of misleading and deceptive conduct in relation to costs representations in franchise disclosure documents.
Over 40% of prospective franchisees did not seek independent advice
The Code requires franchisors to obtain written statements from prospective franchisees in this regard. If the franchisee does not obtain advice, these statements must confirm the franchisee has been told to do so.
The ACCC expressed its concern regarding the disclosure practices identified in its report and confirmed its commitment to investigation and enforcement of Code and ACL non-compliance. It also encouraged all prospective franchisees to seek independent advice, and franchisors to endeavour to provide clear and meaningful information in their disclosure documents.