The ACCC Franchising Taskforce cracks down on Franchise Code non-compliance

By Lynne Lewis, Megan Edwards

05-2020

The ACCC and its Franchising Taskforce continue to pursue adherence to the Competition and Consumer Act in the Australian franchise sector. The ACCC has obtained a court enforceable undertaking from Bob Jane Corporation Pty Ltd (Bob Jane). This action is a reminder to franchisors that they cannot dispense with obligations under the Franchising Code of Conduct (Code), even with agreement of the franchisee. 

Bob Jane is the operator of an Australia wide chain of 86 franchise and 49 company-owned sites which supply tyre and wheel products and car servicing. During 2015/2016 three franchisees on a fixed term agreement reached the expiry of their franchisee agreements and Bob Jane and each franchisee agreed to enter into a "over-holding" basis month to month.  In 2017 the ACCC raised concerns with Bob Jane that the implementation of the "over-holding" agreement did not comply with the Code.  In 2019 the ACCC again raised concerns with this process as the conduct was not, in the ACCC's view, appropriately remedied after similar arrangements were entered into with another four franchisees on fixed term agreements during 2018 and 2019. 

It is the ACCC's view that these over-holding arrangements breached the Code in that Bob Jane failed to do the following in relation to the renewals of the franchise agreements: 

  • failed to notify each of the franchisees in writing with a least six months notice before the end of the term in relation to its intention to renew the franchise agreement (clause 18 of the Code)
  • failed to provide each of the franchisees with a copy of documentation at least 14 days prior to the proposed extension of the franchise agreement, as required by clause 9(2) of the Code, including a copy of the franchise agreement, and disclosure document
  • failed to obtain a written statement from each franchisee that they had received, read and had a reasonable opportunity to understand the disclosure document and the Code (clause 10(1) of the Code). 

Bob Jane did not admit that it had breached the Code, but rather acknowledged its conduct was likely to have contravened section 9, 10 and 18 of the Code.   As a result, Bob Jane has provided a court enforceable undertaking, which includes undertakings that: 

  • Bob Jane will not terminate a franchise agreement that operates on an over-holding basis without providing a minimum of six months written notice; 
  • Bob Jane will give six months notice of its intention to renew or extend franchise agreements; 
  • In the event that franchise agreements are renewed or extended, Bob Jane will provide disclosure documents as required by the Code; and
  • Bob Jane will not enter into or extend the term or scope of a franchise agreement without receiving a written statement from the franchisee as required by clause 10 of the Code. 

Bob Jane also undertook to establish and implement a compliance program, and maintain the program for a period of at least three years.  While there is no financial penalty for Bob Jane at this stage, any breach of the court enforceable undertaking is likely to result in a more significant penalty than would otherwise have been ordered. 

This action by the ACCC is a reminder to franchisees that the mandatory obligations of the Code cannot be varied by agreement between the franchisee and franchisor. Franchisors should ensure the Code is adhered to in all dealings with franchisees.