A recent decision by the ACCC to issue infringement notices to a franchisor demonstrates the need for franchisors to comply with the ongoing disclosure requirements to franchisees under the Franchising Code of Conduct.
On 8 May 2017, the Australian Competition and Consumer Commission released a statement informing the public that it issued two infringement notices to Domino's Pizza Enterprises Ltd (Domino's) because it had reasonable grounds to believe that Domino's had failed to provide its franchisees with a 2015 – 2016 marketing fund financial statement and auditor's report within the timeframes outlined in the Franchising Code of Conduct.
Domino's is the first company to pay penalties for alleged non-compliance with the Franchising Code of Conduct.
What is the requirement?
Under the Franchising Code of Conduct, if franchisees are required to contribute to a marketing fund, franchisors must:
- within 4 months after the end of the last financial year, prepare an annual financial statement detailing all of the fund's receipts and expenses for the last financial year; and
- ensure that the statement includes
sufficient detail of the fund's receipts and expenses so as to
give meaningful information about:
- sources of income; and
- items of expenditure, particularly with respect to advertising and marketing expenditure; and
- have the statement audited by a registered company auditor within 4 months after the end of the financial year to which it relates; and
- give to the franchisee:
- a copy of the statement, within 30 days of preparing the statement; and
- a copy of the auditor's report, if such a report is required, within 30 days of preparing the report (unless 75 per cent of franchisees agree the franchisor does not have to comply with this requirement).
How did Domino's breach?
While Domino's did provide its franchisees with a marketing fund financial statement and auditor's report, it was provided outside the timeframes prescribed by the Franchising Code of Conduct. Specifically, Domino's had provided the 2015 -2016 marketing fund financial statement and auditor's report to its franchisees in late February 2017.
Key Lessons
Franchisors should be aware of the ongoing compliance requirements outlined in the Franchising Code of Conduct and the ability for the ACCC to impose financial penalties and infringement notices.
Since the changes to the Franchising Code of Conduct were introduced in 2015, Domino's is the first company to pay penalties for alleged non-compliance with the Franchising Code of Conduct.
The ACCC may issue an infringement notice where it has reasonable grounds to believe that a person has breached a penalty provision. Infringement notices are a timely and cost-effective way of resolving the ACCC's concerns and avoiding legal proceedings.
There is no legal obligation on a recipient to pay an infringement notice. However, infringement notices are a way of resolving the ACCC's concerns and avoiding legal proceedings. Non-payment of infringement notices may expose franchisors to the prospect of legal proceedings arising from the ACCC's concerns that the franchisor has contravened the Code. If the ACCC is successful in any such proceedings the penalty imposed by the Court may be significantly higher than the infringement notice penalty.
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