As a result of breaching the Franchising Code of Conduct, the Federal Court slapped the wrists of Franchisor, South East Melbourne Cleaning Pty Ltd, with a $500,000 penalty. The consumer watchdog, Australian Competition and Consumer Commission "ACCC", brought the claim forward against the franchisor for allegedly engaging in unconscionable conduct by:
- Falsifying information in relation to Franchisees income;
- Failing to inform Franchisees of the need to seek independent advice before entering into the agreement;
- Failing to pay Franchisees for work that had been completed; and;
- Constantly demanding the initial franchising fee
Undoubtedly, the expensive mistake serves as a caution to other Franchisors who may be in breach of the Franchising Code of Conduct. As at 1 January 2015, the revised Code introduced additional disclosure obligations along with the duty to act in good faith, among other changes. Franchisors have the duty to ensure that their Franchising documentation is amended to reflect such changes. In addition, The Franchising Code of Conduct gives the ACCC authority to issue infringement notices, in respect to certain breaches of the Code. The ACCC are taking breaches of the new Code seriously and expect Franchisors do the same.
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