On 20 August 2014, the ACCC accepted a court enforceable undertaking from Express Mobile Services Pty Ltd, a mobile professional services franchise business with several divisions across Australia.
The ACCC alleged that Express Mobile Services contravened the Franchising Code of Conduct (Code), and therefore breached s 51AD of the Competition and Consumer Act 2010 (Cth) (CCA). Express Mobile failed to comply with clause 16(1A) of the Code, which prohibits franchise agreements from containing waivers of verbal and written representations made by a franchisor.
The ACCC also alleged that Express Mobile Services had contravened sections 18 and 29(1)(l) of the Australian Consumer Law by making false or misleading representations to prospective franchisees. The representations concerned false information about the nature of Express Mobile Services’ Test & Tag electrical services franchise, and the required qualifications to be a franchisee. Express Mobile also made representations to prospective franchisees that they would be provided with initial customers when this was not always the case.
Express Mobile Services acknowledged that its conduct was likely to have contravened sections 18, 29(1)(l) and/or 51AD of the CCA. To address the ACCC’s concerns, Express Mobile provided an undertaking (available here) that it will:
- not engage in the same or similar conduct for three years;
- write to each franchisee stating it does not intend to enforce the waiver of representations clause (and offer to remove the clause), and advising them of the ACCC website’s free online franchise education course;
- provide current and prospective franchisees and disclosure documents that comply with the Code;
- make changes to its website and existing advertising to remove any representations relating to the supply of initial customers; and
- establish and implement a Consumer Law Compliance Program, and maintain it for three years.
This enforcement action highlights the ACCC’s ongoing priority to ensure franchisors meet their obligations to franchisees. It is important for franchisors to ensure that they make accurate representations to potential franchisees, particularly in disclosure documents, and ensure their franchise agreements comply with the Code.
This will be even more important when the changes to the Code and the CCA, which were passed by Parliament this week, come into force in January next year (view the exposure draft here, and our blog here). The amendments seek to make life easier for prospective franchisees, with a range of new obligations and enforcement options that aim to deter franchisors from unfair practices from franchisors.
A key change will be the introduction of a good faith duty, which will apply to all aspects of dealings between franchisors and franchisees, including negotiations. This duty will be underpinned by the most significant change to the Code, which is the introduction of civil penalties and infringement notices where the ACCC has reasonable grounds to believe that a person has breached of the Code, including contraventions of the duty of good faith and the disclosure obligations.
Although clause 16(1A) will not be a civil penalty provision under the reformed Code, there is a risk that the ACCC would characterise misleading or deceptive conduct as dishonest and uncooperative, and thereby in contravention of the good faith duty. This could expose a franchisor who engages in conduct similar to Express Mobile’s conduct to an infringement notice (and fines of up to $8,500 per infringement notice). It would also allow the ACCC to seek a pecuniary penalty of up to $51,000 from the court.