The most common causes of complaints to the Australian Competition and Consumer Commission (ACCC) regarding franchising fall into two distinct categories – breaches of the Franchising Code of Conduct and breaches of the Trade Practices Act.
These are further defined as:
Franchise Law: Breaches of the Franchising Code of Conduct
- Failure to mediate: When one party to a franchise agreement formally puts the other party on notice of serious dispute and their intention to mediate, the other party is obliged to attend mediation (though not obliged to reach a settlement). A failure to attend mediation or failing to agree to mediate is a breach of the Franchising Code and franchise law.
- Failing to provide a disclosure document: The failure to provide a franchise disclosure document is a clear breach of the Franchising Code and franchise law. This type of franchise law breach can be caused by very poorly-organised and advised franchisors, or businesses which do not consider themselves to be franchises, but rather licensed business opportunities, or distributorships.
Franchise Law: Breaches of the Trade Practices Act
Aspects of the Trade Practices Act 1974 are also considered key areas of franchise law.
Although not specific franchise legal requirements, franchise professionals need to be aware of and familiar with the Trade Practices Act.
Breaches of the Trade Practices Act occur more regularly because of their applicability to both franchised and non-franchised businesses.
Generally Trade Practices Act breaches which occur in franchising are among the following:
- Providing false and misleading representations: Irrespective of whether the intent to deceive exists, if a franchisee is misled into buying a franchise business based on representations made to them by the franchisor (and those representations later turn out to be false), then the franchisee may have a case against the franchisor. The ACCC too may take action where misrepresentation has been alleged. Misrepresentation issues in franchising often encompass claims made or implied as to sales turnover, the adequacy of the site or location, the level of demand for the franchise product or services, or the extent of training and/or franchise field support.
- Unconscionable conduct: Unconscionable conduct is not defined in the Trade Practices Act, but courts can recognise conduct as unconscionable when they see it. Unconscionable conduct is more than just hard bargaining, which might be accepted between two parties of different relative strengths (franchisor and franchisee). A layman’s explanation of unconscionable conduct is when one party (usually the franchisor) takes extreme advantage over another party’s extreme disadvantage (ie. a scenario where the party with the upper hand takes concessions by figuratively holding a gun to the head of the other party).
Details of ACCC investigations and prosecutions under the Franchising Code of Conduct and the Trade Practices Act can be found online.
Details of other legal proceedings related to franchising can also be found online.