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Franchisors take note – the fines keep growing

The days of ‘slap-on-the-wrist’ fines for franchisors are well and truly a thing of the past.

Fines for non-compliance with the Franchising Code of Conduct (‘Code’) have come a long way since Domino’s Pizza became the first company to pay a financial penalty for being in breach.

In 2017, Domino’s was fined $18,000 (total) for two infringement notices issued by the ACCC. The company had breached the Code by failing to provide its franchisees with an auditor’s report and an annual marketing fund financial statement within prescribed time limits.

Jump forward to 2019.

After an investigation launched by the ACCC, the Federal Court found Geowash Pty Ltd had breached the Code by acting unconscionably towards franchisees while in the process of marketing and selling its carwash and detailing franchises. The penalty?

$4.2 million.

This amount included a $1.045 million fine against a Geowash director, Sanam Ali, and a $650,000 fine against its franchising manager, Charles Cameron. Ali and Cameron appealed the penalties in 2020.

On 22 June 2021 the Full Federal Court dismissed Ali and Cameron’s appeal and upheld the Court’s original decision that they had knowingly breached both the Code and the Australian Consumer Law.

What does this mean for franchisors?

The Court’s dismissal of the appeal provides a timely reminder that of the financial and reputational risk facing franchisors in relation to compliance with the Code. Both the ACCC and the Federal Court have shown they have little patience for franchisors failing to abide with their regulatory responsibilities.

It is also worth noting that the appeal was dismissed prior to the enactment of the recent amendments to the Code aimed at increasing the protections afforded to franchisees. These changes vary from extended cooling off periods to the right of franchisees to terminate an agreement after receiving leasing information. Prime Minister Scott Morrison has made comment that the changes could result in franchisors facing fines approaching $10 million.

Solutions moving forward

Cowell Clarke has a variety of strategies for assisting franchisors with compliance and risk management. One of these is an online portal that enables franchise owners to stay on top of their operational and compliance requirements. For more information on the portal or for any other assistance regarding your franchise business please contact us and someone from our franchising team will assist you.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.

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