Franchisors beware: ACCC set to audit

Special attention

The Australian Competition and Consumer Commission (ACCC) sometimes release details of industries or target groups that will be receiving their attention, either by media releases or in public speeches. Putting groups on notice of its intentions in this ‘public’ way is likely to prompt the wider audience, as well as responding publicly and visibly to consumers’ complaints.

Forthcoming audits

In a speech to the Legal Symposium at the National Franchise Convention on 20 October 20131, ACCC deputy chairman Michael Schaper signalled the industries which would receive scrutiny. According to Schaper, take-away food franchises and health and fitness franchises will be subject to attention in forthcoming audits as they generate a disproportionate number of complaints. Particularly in focus will be breaches of the Australian Consumer Law (ACL) and the Franchising Code of Conduct (Code).

ACCC powers

The ACCC regulates the Code, which is a mandatory industry code that applies to the parties to a franchise agreement. The ACCC investigates alleged breaches of the Code or the Competition and Consumer Act 2010 (Cth) (Act) and can take enforcement action where appropriate. The ACCC’s auditing capacity is granted under section 51ADD of the Act. This gives the ACCC the power to request documents from franchisors including:

Franchise Agreements
Disclosure documents
Marketing fund statements

Common breaches

Breaches of the ACL or the Code that arise in these sectors often relate to:

inadequate disclosure by franchisors to prospective franchisees; and
false or misleading representations by franchisors to prospective franchisees.

The ACCC has audited over 50 franchisors since 2001. Although the ACCC has signalled its interest in take-away food and health and fitness franchises, other franchise sectors may still be audited by the ACCC.

Practical steps for franchisors

Some practical steps to ensure compliance with the ACL and the Code include:

ensuring that Franchise Agreements are up to date and accurate;
ensuring that the franchise disclosure documents do not contain any false or misleading representations and that all relevant information is included;
keeping marketing fund statements accurate and up to date;
seeking legal advice to ensure that the relevant documents do not breach compliance standards; and
liaising with the ACCC proactively and co-operatively if there are compliance queries.

A million reasons to comply

Penalties under the ACL range from $220,000 for individuals to $1.1million for corporations. Moreover, the ACCC’s use of its ‘infringement notice’ powers (an alternative to prosecution for certain breaches of the ACL) are increasingly being used – against both small and large companies. These are good reasons to ensure compliance and align yourself with a franchise lawyer. By following these practical measures you will be taking steps to prevent an audit by the ACCC being a costly ordeal.

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