ACCC to focus on franchisors’ disclosure in the food services sector

Café, restaurant and take away food services industries will be the target of the ACCC’s next round of Franchising Code compliance checks.

The ACCC has responsibility for regulating the Franchising Code of Conduct in Australia, which includes conducting an active compliance check program.

“The ACCC receives more franchising code related reports from café, restaurant and take-away food franchisees than any other sector, and for this reason franchisors operating in this sector will be the target of our next round of checks” Deputy Chair Mick Keogh said.

Under the Franchising Code, franchisors must disclose certain information so prospective franchisees can make a reasonably informed decision before they purchase a business.

The information must include certain set up and operating costs, information about supply restrictions which limit the ability of a franchisee to shop around, and if applicable site or territory history to assist the franchisee in assessing the viability of the business.

“In the last six months, almost a quarter of reports we received about the Franchising Code related to inadequate disclosure. This highlights the need for improved disclosure to prospective franchisees,” Mr Keogh said.

“This information is vital as it allows them to make better informed decisions, and a lack of disclosure may result in substantial harm to the franchisee.”

As part of this initiative, the ACCC will assess important documents franchisors provide to potential franchisees, to check whether they clearly and accurately disclose information that is crucial for potential franchisees to consider before they sign agreements or pay non-refundable money.

The ACCC will share some of its findings at the completion of this project to improve the quality of franchisors’ disclosure in this sector, as well as to assist potential franchisees to understand the information made available, and to ask questions if there is a lack of information.

This project follows the significant work the ACCC has completed in the franchising sector during the last six months, including accepting a court enforceable undertaking from Husqvarna Australia for alleged breaches of the Franchising Code, a voluntary commitment by Luxottica Franchising Australia to improve transparency for franchisees, and appearing before the Parliamentary Inquiry into the Franchising Code of Conduct.

“Franchisors need to take their disclosure responsibilities seriously. The recent Ultra Tune Australia case is a warning to all franchisors about what can happen when disclosure is not adequate.

“We also encourage everyone thinking about buying a franchise to carefully examine and understand their disclosure document, ask questions, and get professional advice before signing any franchise agreements,” Mr Keogh said.

Background

Targeted franchising compliance checks

· Under the Competition and Consumer Act the ACCC has the power to request certain information and documents.

· The ACCC is focusing on the following mandatory disclosure areas as they provide key information to prospective franchisees.

  • Disclosure of certain costs of establishing and operating a franchise business
  • Disclosure of limitations on where franchisees can buy goods and services
  • Disclosure of whether a franchisor receives rebates or benefits when franchisees purchase from certain suppliers
  • Disclosure of site or territory history
  • Disclosure of cooling off costs
  • Disclosure of current and former franchisee contact details.

· This information should be disclosed through the disclosure document at least 14 days prior to any agreement being entered into or non-refundable money being paid. The format for disclosure documents is set out in the Code.

· In line with its Compliance & Enforcement policy, the ACCC may consider enforcement action against franchisors where it amounts to a breach of the Franchising Code or the Australian Consumer Law.

Small Business in Focus

  • The ACCC’s 17th Small Business in Focus report is now available online
  • The report highlights the ACCC’s work and recent developments across the small business, franchising and agriculture sectors, from 1 July to 31 December 2018. This report also includes summary data on contacts received by the ACCC relating to small business, franchising and agriculture matters.
  • During this period, the ACCC received 3729 small business contacts (reports and enquiries), 274 franchising contacts and 114 agriculture contacts.
  • Small businesses reported scam losses of just over $4.7 million.
  • The ACCC reported on enforcement action relating to small business and franchising issues.
  • The ACCC continued its focus on the unfair contract terms (UCT) law.

/Public Release.View in full here.