ACCC calls for $10m penalties for unscrupulous franchisors

Emma Koehn
21 September 2018
The Age
Maximum penalties for franchisors who breach the sector’s code of conduct should be massively increased to $10 million instead of the current $63,000 limit, the consumer watchdog says.
Senior management from the Australian Competition and Consumer Commission (ACCC), including deputy chairman Mick Keogh, appeared before the Senate’s inquiry into the effectiveness of the franchising code on Friday and said penalties had to be increased to provide a disincentive for poor behaviour.
The current maximum penalty for a breach of the Franchising Code is $63,000 and requires the watchdog to take the franchisor to court.
By comparison, maximum penalties for a breach of Australian Consumer Law were recently increased to either $10 million per breach, 10 per cent of a company’s annual turnover or three times the value the company was deemed to have received from the breach.
The inquiry is probing whether the existing Franchising Code of Conduct stands up against allegations of unconscionable and deceptive behaviour by franchise groups.
Industry giants including Domino’s, Caltex, 7-Eleven and Retail Food Group have been accused of operating business models that crush franchisees, push many to underpay staff to stay above water and lead others to financial ruin.
Mr Keogh said the commission’s power to penalise unscrupulous franchisors was “a blunt tool for a dynamic and complex industry” and that the ACCC could seek court action only after serious damage had been done.
“Evidence is crucial for this and can be hard to gather,” Keogh said.
He also said there should be a requirement for potential franchisees to get acquainted with the risks of buying into a franchise agreement, and what it takes to get out of one.
“We’d also like to see actions to create more incentive for prospective franchisees to seek independent advice,” he said.
When it comes to disclosure documents, “the most important part is the divorce contract” and outlining to franchisees how they exit an agreement, he said.
The ACCC’s submission to the Senate’s franchising inquiry had argued the penalties for breaching the franchise code should be increased so they are “at least” in line with consumer law penalties.
However, the watchdog also said regardless of the penalties, its ability to chase franchisors through court action was slow going.
ACCC’s executive general manager of the merger and authorisation review division, Scott Gregson, said “there’s much work on our plate”.
The watchdog confirmed it had started court action in just 33 cases since the inception of the franchise code in 1998. Breaches can include failing to provide critical information to franchisees, such as disclosure documentation or reports on marketing activities.
The ACCC has two actions underway, one against UltraTune and the other a carwash franchise called Geowash.
Mr Gregson said the commission’s team also had to focus on the rest of consumer law. “We have between 65 and 70 investigators that deal with consumer matters across the whole economy,” he said.
The commission also pushed to make it compulsory for franchisors to provide profit details to prospective buyers of an existing franchise.
Last Friday, Jamaica Blue operator Foodco told the inquiry it didn’t provide a franchisee with details that the outlet she was intending to buy was struggling because this wasn’t a requirement.
But Mr Keogh argued against a suggestion that the ACCC create a database of franchise disclosure documents and information for prospective franchisees to access.
He said this could lead to the perception that the watchdog had endorsed a company’s business model if it hosted its disclosure information on a database, when it was not possible for the ACCC to investigate every claim made by a franchisor.
“We certainly couldn’t be in the position to scrutinise them [that material] in terms of the accuracy of the information provided,” he said.