Business Franchise Australia and New Zealand
Hot Topics: Behind the Headlines
Jason Gehrke | Franchise Advisory Centre
Government launches new franchising website
The Australian Government has launched a dedicated franchising website where potential franchisees can access information in one spot provided by various government agencies.
The new website – www.business.gov.au/ franchising - was a recommendation of the 2018 inquiry and has been launched ahead of a government announcement about changes to the Franchising Code. The site also provides information for potential franchisors, and information on resolving franchise disputes.
Major telco to exit franchising
Listed telecommunications giant Telstra has announced it will acquire full ownership of all 166 branded stores run by independent licensees and 104 premises run by master licenced dealer Vita by 2025, according to a media report.
With more customers interacting online and changes to retail more broadly, the company decided it was time to bring back full ownership of its store network, according to the report. The acquisition is expected to be completed by 2025, when independent licences and publicly-listed franchisee
Vita Group will lose rights to use Telstra’s branding. It is unknown if pending changes to the Franchising Code of Conduct contributed to Telstra’s decision.
Logistics chain acquired by international brand
Italian-headquartered third-party provider of shipping, fulfilment, print and marketing solutions, Mail Boxes, Etc. (MBE), has acquired Sydney-based freight forwarding franchise Pack & Send, according to a media report. Pack & Send will continue to operate as an independent company managed by its current executive team.
New franchise fines could exceed $10 million for Code breaches
Immediate past Business Minister Michaelia Cash has confirmed that fines under the Franchising Code of Conduct could reach or even exceed $10 million, according to a statement to a recent Senate Estimates Hearing committee.
Prime Minister Scott Morrison recently announced that franchisors could face fines of up to $10 million under changes to the Franchising Code of Conduct where large franchisors undertake systemic breaches of the Code, including unilaterally varying contracts, poor compensation, and reneging on warranties. However, the announcement did not make it clear at the time how this new level of fine would work with a proposal to double the number of penalty units used to assess fines under the Code.
Under the penalty unit system, the Franchising Code currently allows for a maximum 300 penalty units to be assessed for a serious breach of the Code, with the November 2020 Exposure Draft of the new Franchising Code proposing to increase this to 600 penalty units. The current value of a penalty unit is $222, so at the maximum level, a serious breach of the Code would increase from $66,600 to $133,200.
In a Senate Committee hearing on March 24, Minister Cash (who has since changed to the role of Attorney General in a Cabinet reshuffle on March 29) stated that the Code reforms “…double the maximum financial penalty for all breaches and also introduce new maximum penalties of the greater of $10 million, three times the benefit or 10 per cent of the annual turnover (of a franchisor) for wilful, systemic and egregious breaches of the code.” (See page 115 of the Committee Hansard transcript).
This could mean that not only will the new fine limit co-exist with a doubling of the penalty unit system, but that fines could even exceed $10 million depending on the franchisor’s turnover, or if three times the benefit arising from the behaviour is greater than $10 million.
This statement mirrors penalties proposed in a private member’s bill tabled by Labor Senator Deb O’Neill, who was a member of the joint parliamentary committee which conducted the 2018 inquiry into the effectiveness of the Franchising Code of Conduct, although the higher fines appear to be targeted at auto manufacturers in the wake of changes to auto sales models and Holden’s departure from the Australian market last year.
Franchisee sues insurers over lockdown interruption
A Victorian franchisee of national fitness chain Jetts has launched legal action in the Federal Court claiming his insurer refused him compensation under his business interruption policy after his business was forced to close during two state-wide lockdowns, according to a media report.
The claim hinges on the insurer’s position that coronavirus is not deemed a “quarantinable disease” under Australia’s Quarantine Act, whereas the franchisee is arguing that that legislation has been superseded by the Biosecurity Act 2015.
In November 2020 the New South Wales Court of Appeal rejected a claim by the insurance industry that polices should not cover losses incurred by business clients due to COVID-19, a ruling only related to policies referencing the now repealed Quarantine Act 1908, rather than the Biosecurity Act 2015. The Insurance Council of Australia is reportedly intending to appeal some decisions made by the NSW Court of Appeal.
Franchisor admits misleading franchisees about income
The Federal Court has declared that courier franchise Megasave Couriers Australia and its sole director Gary Bourne breached the Australia Consumer Law by making false or misleading representations to potential franchisees, according to a statement by the Australian Competition and Consumer Commission (ACCC).
In court proceedings initiated by the ACCC, Megasave admitted it misled potential franchisees about guaranteed minimum weekly incomes of around $2,000 per week, and guaranteed annual income of around $91,000 if they bought a Megasave franchise.
The representations were made in promotional statements and marketing material on Megasave’s website and in online advertisements, as well as in documents and communications provided to prospective franchisees. However, during this time Megasave was not paying existing franchisees the promised minimum weekly payments, and did not have sufficient revenue to pay existing or potential franchisees in accordance with the representations it was making.
The court has banned Megasave director Gary Bourne from managing a corporate for a period of five years. A hearing to determine the penalties and compensation for affected franchisees will be held on 29 April 2021.
NZ brand rewards customers for recruiting franchisees
New Zealand flooring, curtains and solar solutions franchise Harrisons is offering its customers $2,000 worth of store credit for referring a potential franchisee who subsequently joins the chain, according to Franchise New Zealand magazine.
Many franchise brands offer existing franchisees a cash incentive to recommend the brand to potential franchisees, but extending a similar offer for customers who refer potential franchisees is unique.
How to improve franchise resale processes
A two-part interactive online workshop to help franchisors and franchisees improve and accelerate the process of selling existing outlets will be held in May.
The Managing Franchise Resales workshop provides key insights into the resale process, how to better prepare an existing franchise for sale and how to more effectively engage franchisees and manage their expectations during the resale process.
The workshop will be held in two parts on May 18 and 20. For more information, www.franchiseadvice.com.au.