The Costs of Non-Compliance

Didn’t know your business proposal was covered by the Franchising Code of Conduct (the Code)? The penalties can be significant so check the Code first.

The Code applies if:

(a) a person (franchisor) grants to another person (the franchisee) the right to carry on the business of supplying services under a system or marketing plan substantially determined, controlled or suggested by the franchisor;

(b) the operation of the business will be substantially or materially associated with a trade mark or advertising:

(i) owned, used or licensed by the franchisor; or

(ii) specified by the franchisor; and

(c) the franchisee must pay or agree to pay the franchisor before starting or continuing the business a fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee.

The Code imposes civil penalty provisions up to a maximum of 300 penalty units i.e. $51,000 for a breached civil penalty provision. Civil penalty provisions under the Code include:

(a) failure to create a Code compliant disclosure document;

(b) failure to act in good faith;

(c) failure to provide pre-entry disclosure documents as required by the Code; and

(d) failure to disclose a materially relevant fact.

The ACCC also has the power to pursue franchisors who fail to comply with the Code through the Competition and Consumer Act 2010 (Cth) with enforcement action and pecuniary penalties, examples of these include:

(a) injunctions to stop the conduct or to require some action to be taken;

(b) compensation and damages;

(c) disqualification orders to prevent directors from managing corporations for a period of time; and

(d) pecuniary penalties, that vary on the circumstances of the breach, that far exceed the civil penalty units under the Code.

It is therefore vital that business owners are aware of the Code and ensure they understand and discharge their obligations.

Share this post with your friends

Share on facebook
Share on twitter
Share on linkedin

Related Posts