ACCC cleaning up dodgy franchisors

Although not quite ready for its own Underbelly series, Melbourne has hit us with another riveting tale of deceit, a lying business owner, cleaning products and a $500,000 fine.

Coverall Cleaning Concepts was a Melbourne commercial cleaning franchise that recently got busted by the ACCC for dodgy dealings and lying to prospective franchisees.

Although the parties settled the case (we are imagining, in Underbelly style, car chases and laneway fights), orders were sought from the Federal Court based on a statement of agreed facts. Of all the naughty things Brett Jones (Coverall's owner) did, these are our favourites:

1. He failed to include information, in Coverall's disclosure document, about the potential earnings of Coverall's franchisees. It seems that old Brett didn't realise assuring Mr Eliaser and Mr Patel (prospective franchisees) that each would earn $4,000 and $5,000 respectively per month was in fact providing a prospective franchisee with information about his/her potential earnings. Not only did he not have reasonable grounds to throw around numbers like that, it is a massive no-no to not include this information in the disclosure document.
2. He also withheld money owing to one of the franchisees for completed work, while continuing to charge the franchisee a franchise fee. Shocking, right?

The Federal Court decided that Brett and Coverall had done a serious doozy this time (throwing around big legal words like "unconscionable conduct" and "false or misleading representations") and slapped Brett with a $30,000 fine (ouch) and Coverall with a $500,000 fine (double ouch).

Despite this being a great story, franchisors need to remember that as of 1 January 2015 they now have a statutory requirement to act in good faith; thanks to the new Franchising Code. This means all franchisors must ensure their disclosure documents are accurate and correctly contain the required information.

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