ACCC flags financial penalties for Franchising Code breaches

The Australian Competition and Consumer Commission has called for stronger sanctions for breaches of the Franchising Code as the sector continues to boom.

Franchising Australia 2012 research results released this morning reveal the number of franchises operating in Australia has increased 15% in the last two years to 1,180 franchise businesses.

Lead researcher and director of Griffith University’s Asia-Pacific Centre for Franchising Excellence, Professor Lorelle Frazer, said the Australian franchise sector is making an impressive recovery from the economic downturn and now contributes $131 billion to the Australian economy.

“Despite turbulent global economic conditions and a relatively subdued national outlook, in terms of contribution to the Australian economy, and in comparison with small business in general, the franchise sector continues to impress,” Frazer said.

However, as the sector thrives, ACCC deputy chair Dr Michael Schaper told SmartCompany financial penalties are needed to address persistent breaches of the Franchising Code.

Schaper told the Franchising Council of Australia’s annual national conference in Canberra on Sunday that the watchdog received 636 franchising complaints over the last financial year in comparison with 601 in the previous year ever.

“The ACCC has administered the Franchising Code for 14 years and during that time it has become apparent that a small but persistent group of franchisors continue to wrongly represent that they are not franchise systems to avoid the obligations of the franchise code despite the many actions taken by the ACCC,” he says.

“The ACCC continues to be concerned about some franchisors not providing documentation, engaging in misleading conduct or using inflated income claims to sell a franchise.”

Schaper says a particular area of concern is the cleaning and home service industry where potential franchisees with a non-English speaking background have been targeted.

“The classic one is franchisors in the cleaning services sector who say ‘Sign up with us and you will earn X per week’; and then people turn around after a couple of months and say ‘I’m not earning anything like that’,” he says.

“The other hot button issues are failure of franchisor to comply with the franchise code of conduct and the third biggest is unconscionable conduct, which is just behaving beyond the pale of normal business conduct.”

As a result of these persistent breaches the ACCC is calling for stronger sanctions as at the moment there is no financial penalty.

“At the moment they can get an injunction but there is no financial penalty and that is the main sort of thing that makes people stop and take notice,” says Schaper.

“It is frustrating for franchisees and unfair to the majority of franchise systems doing the right thing and there are rogues breaking the law and it is very hard for us to give them appropriate penalties.”

Schaper says the ACCC has “made its view clear to the government” as legislative change would be required to bring in financial penalties to the code.

He declined to say the size of the financial penalties sought and said this would be an issue for the government.

“The main deterrent would be knowing there are some financial penalties,” Schaper says.

This story first appeared on SmartCompany.