ACCC backs harsher penalties in franchise sector

The Australian Competition and Consumer Commission (ACCC) has struck out at the franchising sector, calling for a strengthened Franchising Code of Conduct, including increasing penalties and encouraging more meaningful disclosure of information, to protect franchisees.

ACCC deputy chair Mick Keogh called for these changes at the National Franchise Convention Legal Symposium in Melbourne.

“We want to see the Franchising Code strengthened, and supported by strong penalty provisions, to ensure franchise systems operate well for all parties involved to encourage compliance with franchise agreements and to keep competition on an even keel,” Keogh said.

“The biggest limitation within the current legislation is that unfair contract terms are not illegal. The worst that can happen under law is that unfair terms are subject to legal challenge, the Court declares them to be unfair and effectively strikes them out of the contract. But a business does not face a penalty for including them in the first place.”

Keogh said that, without fear financial penalties, businesses have an incentive to include unfair terms in contracts to their own benefit, and the detriment of franchisees.

Each year, the ACCC receives about 400 reports relating to franchising, with serious breaches prompting an investigation.

Earlier this year, the ACCC released a 44-page submission to the Senate inquiry into the franchising sector, pushing to increase the maximum civil penalty provision in the industry code from $63,000 to over $1 million.

The ACCC has litigated 33 alleged breaches of the franchising code over the last two decades and 16 court-enforceable undertakings. This includes an $18,000 settlement with Domino’s in 2017 for an alleged failure to provide some franchisees with marketing fund statements and auditors reports.