ACCC issues warning to franchisors - upholding protections afforded to small businesses under industry codes is an enforcement priority

eBulletin - 16 May 2017

Summary

The ACCC has signalled a clear warning to franchisors that upholding the protections afforded to small businesses under industry codes is an enforcement priority. This warning came after the ACCC advised that Domino’s Pizza Enterprises Limited (Domino’s) became the first company to pay penalties for alleged breaches of the Franchising Code of Conduct. As the alleged breaches were essentially technical breaches of timing requirements prescribed by the Franchising Code, it is evident that the ACCC is serious about enforcing industry codes.

In this eBulletin we look at the breaches alleged by the ACCC, and how this may indicate its action in future.

 

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The breaches alleged by the ACCC

Where a franchisee is obliged to make a marketing fund contribution, a franchisor is required under the Franchising Code to:

  1. prepare an annual financial statement detailing all of the fund’s receipts and expenses within 4 months after the end of the last financial year;
  2. have the statement audited by a registered company auditor within four months after the end of the last financial year (unless 75% of the franchisees who are contributing towards the marketing fund agree to waive this requirement);
  3. provide a copy of the financial statement  to the franchisee within 30 days of preparing the statement; and
  4. provide a copy of the auditor’s report to the franchisee within 30 days of the report being prepared.

In the case of Domino’s, it confirmed that it had provided its marketing fund financial statement for the financial year ending 30 June 2016, and its auditor’s report of the marketing fund, to franchisees in late February 2017. This date was outside the timing requirements prescribed by the Franchising Code in respect of both documents.

Accordingly, the ACCC exercised its power to issue two infringement notices to Domino’s. This power can be exercised where the ACCC has reasonable grounds to believe that a person has contravened certain requirements of the Franchising Code.

As the current amount for an alleged breach of the Franchising Code is fixed at $9,000 for a body corporate, the ACCC sought $18,000 in penalties from Domino’s. Whilst Domino’s has paid this penalty, the fact that it made such payment does not constitute an admission that it has contravened the Franchising Code.

 

Where to next?

In the current environment where the relationship between a number of high-profile franchisors and their franchisees is reaching breaking point, the ACCC has opened the door for disgruntled franchisees in raising complaints about their franchisor’s conduct.

Whilst the ACCC has fined Domino’s for relatively minor and technical breaches of the Franchising Code, the ACCC appears to be intent on investigating whether franchisors have committed more serious breaches of industry codes in an effort to uncover any exploitative practices by franchisors towards their franchisees. It remains to be seen whether any such practices will ultimately be exposed by the ACCC and, if so, what enforcement action will be taken.

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Author

Nathan Day, Lawyer

Further information

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