Jim’s Group, in its capacity as franchisor for the Jim’s Dog Wash franchise system, has been fined $24,420 after being issued two infringement notices by the Australian Competition and Consumer Commission (ACCC) for an alleged breach of the Franchising Code of Conduct (Code) and an alleged contravention of the Australian Consumer Law (ACL).
1. Failure to disclose details of former franchisees
One of the infringement notices issued by the ACCC related to an alleged “significant understatement” of former franchisees within the Jim’s Dog Wash division of the franchise system. Further, it was also alleged that the Disclosure Document failed to disclose the details of former Jim’s Dog Wash franchisees as required under the Code.
In accordance with Clause 8(6) of the Code, a franchisor who has entered into a franchise agreement, must update its disclosure document within 4 months after the end of each financial year. Item 6.5 of a Franchisor’s Disclosure Document must set out each former franchisees’ name, location and contact details if the information is available. It is important to remember that in accordance with Clause 32 of the Code, former franchisees may request in writing that the former franchisee’s details not be disclosed to a prospective franchisee. If such request is received by the franchisor, the franchisor must not disclose such information to a prospective franchisee. Further, the franchisor should ensure that copies of any such requests are safely kept for evidentiary purposes if later subjected to an audit by the ACCC.
It is also worth emphasising that franchisors are expressly prohibited from engaging in conduct “with the intention of influencing a former franchisee to make, or not make, such a request”1. Accordingly, franchisors entering into termination documentation with former franchisees should carefully consider the drafting of such documentation. For example, franchisor initiated statements that the franchisee requests its contact details not be disclosed to prospective franchisees may be considered to be a contravention of the Code and could result in penalties being issued. The ACCC’s ‘Franchising Model Disclosure Document’ guidance template (Model Disclosure Document) published on 9 September 2022 emphasises the need for “useful contact information of former franchisees such as an email address and phone number” to be included in the Disclosure Document. Critically, the Model Disclosure Document urges franchisors to avoid using “former business address and business phone number used by previous franchisees as they no longer operate the franchise”.
For many Australian franchisors, the annual obligation to update its Disclosure Documentation (including the Disclosure Document and Key Facts Sheet) must be finalised by 31 October 2022. The ACCC’s Deputy Chair, Mick Keogh stressed in its recent alert, published on 6 October 2022, the need to use this process to ensure that details of former franchisees are updated adequately, stating: “At this time of year, most franchisors must update their disclosure documents, so this action by the ACCC serves as a timely warning to all franchisors about the importance of ensuring these documents are compliant with the Franchising Code”.
2. Misrepresentation as to cooling off rights
The second infringement notice related to Jim’s Group allegedly misrepresenting to a Jim’s Dog Wash franchisee that its cooling off rights under the code expired 14 days after the earlier of entering into the franchise agreement or making a payment to the franchisor. The ACCC considered this was false or misleading conduct. As many are aware, the representations made by Jim’s Group reflect the position of the Code prior to 1 July 2021.
In July 2021, Clause 26(1) of the Code was amended to clarify that a franchisee may “may terminate a franchise agreement within 14 days2 after entering into the agreement”. There is no longer a requirement about payment of money linked to cooling off rights. The current position in relation to Clause 26 of the Code means that a franchisee may still exercise its cooling off rights even if they have previously paid a deposit.
In the statement released by the ACCC on 6 October 2022, Mick Keogh said “By making this representation, Jim’s Group may have discouraged Jim’s Dog Wash franchisees from exercising their cooling off rights where they paid a deposit some time before they entered into a franchise agreement”.
Summary
The ACCC’s action in relation to Jim’s Group and the fines issued, serves as an important reminder to all franchisors to ensure that all members of a franchisor’s team (including sales staff) are up to date with the current obligations and rights imposed under and protected by the Code. Code compliance is non-negotiable. In a stern warning, Mick Keogh said “The ACCC will not hesitate to take enforcement action against franchisors who are failing to meet their obligations under the Code or are misleading prospective franchisees about their rights under the Code”.
Separately, it is a timely reminder that the ACCC can issue infringement notices and seek to fine a franchisor, in lieu of commencing Court proceedings seeking to impose pecuniary penalties. Importantly, as Jim’s Group has paid the fine, it is not an admission that they have breached the Code or ACL, but the ACCC is now prevented from bringing any Court proceedings in respect of the relevant breaches.
If you need help updating your Disclosure Document (and Key Facts Sheet) or understanding your obligations as a franchisor under the Code, please contact our franchise team.
This article was written by Sean O’Donnell, Partner and Emily Lucas, Associate.
1Section 32(3) of the Code.
2Cooling off rights were previously 7 days
