The ACCC recently took to email to reiterate the due diligence that should be conducted by potential franchisees looking to purchase a franchise. "We always recommend prospective franchisees speak to as many current and former franchisees as they can" the ACCC advised.
The Franchising Code requires that franchisors provide contact details of certain former franchisees in their disclosure document. This obligation is intended to assist prospective franchisee by giving them access to information including:
- a franchises viability
- practical issues that could arise or have arisen in operating the franchised business
- assistance that the franchisor provides and has provided (of which franchise agreements often contain little practical detail)
- why franchisees have entered or left the franchise network.
The ACCC has stated that it is reasonable to expect that franchisors provide an email address and/or phone number for former franchisees (not just the former business address or business phone number, which details are likely to be useless once the franchisee is no longer operating the franchised business). The ACCC have urged that franchisors assist prospective franchisees with their due diligence by providing meaningful contact details of former franchisors and have stated that where these details are not provided the prospective franchisee should query why the information is not being disclosed.
Under the Franchising Code franchisors are not required to maintain contact information for former franchisees that is "up-to-date". But the ACCC has made it clear that the information that is maintained should be "reasonable". The contact information should enable a prospective franchisee to contact a former franchisee as part of the prospective franchisee's due diligence.
The Franchising Code does not require the disclosure of contact information where a former franchisee has requested in writing that the information not be disclosed. Previously, it was the practice of many franchisors to make this request of the franchisees on their exit from the network as a matter of course, however this has not been the case for some time. Since 1 July 2010 franchisors have not been permitted to influence the former franchisees to disclose their contact information upon such a request.