Franchisor Liability – When can I be investigated by the ACCC?

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Table of Contents

• Failure to Act in Good Faith
• Failure to provide a Disclosure Document
• Unconscionable conduct
• Anti-competitive behaviour
• Potential Penalties
• Conclusion

The ACCC is government body that regulates Franchisors in Australia. It has a wide range of powers and is responsible for ensuring that Franchisors follow the rules when it comes to their dealings with Franchisees, suppliers and customers. Some of the rules are focused specifically on the franchising industry, while others are more general and are concerned with consumers. Our franchise lawyers have set out below some of the circumstances when the ACCC can investigate a Franchisor. The following situation may result in different levels of franchisor liability, so it’s important to know your obligations as franchisor.

Failure to Act in Good Faith

One of the biggest and most important changes to the Franchising Code of Conduct that has come about is the requirement for Franchisors to act in good faith when dealing with their Franchisees. If you fail to act in good faith, a Franchisee can report you to the ACCC and is able to investigate the alleged conduct.

Failure to provide a Disclosure Document

Section 9 of the Franchising Code of Conduct requires you to provide all prospective franchisees with a copy of a Disclosure Document in the form as set out in the Franchising Code of Conduct that reflects the position of your franchise at the end of the last finical year. This is a strict requirement for all franchises.

Unconscionable conduct

One of the non-Franchising Code of Conduct obligations is the requirement that you do not act unconscionably. Where the Franchising Code of Conduct and its obligation of good faith might be enough to cover a franchisee, this “general” commercial obligation also covers your dealings with suppliers and your customers. In essence this is any act that goes against “good conscious”. For example, if you take advantage of another parties disadvantage, this would be considered unconscionable conduct.

Anti-competitive behaviour

Another non-Franchising Code of Conduct, anti-competitive behaviour is the “bread and butter” of the ACCC. This is any behaviour that would be considered to lessen market competition. In a Franchising context this actually happens very often. For example, requiring a Franchisee to only buy supplies from “approved” suppliers is actually anti-competitive behaviour can result in the ACCC investigating you for such. The ACCC, however, does recognise that in some instances this is required, for example to keep up the standard of products, and therefore there are certain exceptions that can be granted although they must be applied for. Our franchise lawyers can help you identify any anti-competitive behaviour that you may be engaging in and assist you with an application for an exception with the ACCC.

Potential Penalties

If the ACCC find that you have breached an obligation under the Franchising Code of Conduct or any other law, they have the power (to just list a few) to order you to:

• Pay damages to the affected party;
• Terminate a franchise agreement that you may have with a franchisee; and
• Impose a significant monetary penalty (currently up to $51,000 for a breach related to the Franchising Code of Conduct, much higher for some other breaches such as anti-competitive behaviour).

Conclusion

If you are concerned that you may be potentially breaching the Franchising Code of Conduct or any other law, or have received a notice from the ACCC, contact us and our franchise lawyers will be able to assist in avoiding any franchisor liability.