ACCC to focus on franchisors’ disclosure in the food services sector

| February 7, 2019

Café, restaurant and take away food services industries will be the target of the ACCC’s next round of Franchising Code compliance checks.

The ACCC has responsibility for regulating the Franchising Code of Conduct in Australia, which includes conducting an active compliance check program.

“The ACCC receives more franchising code related reports from café, restaurant and take-away food franchisees than any other sector, and for this reason franchisors operating in this sector will be the target of our next round of checks” Deputy Chair Mick Keogh said.

Under the Franchising Code, franchisors must disclose certain information so prospective franchisees can make a reasonably informed decision before they purchase a business.

The information must include certain set up and operating costs, information about supply restrictions which limit the ability of a franchisee to shop around, and if applicable site or territory history to assist the franchisee in assessing the viability of the business.

“In the last six months, almost a quarter of reports we received about the Franchising Code related to inadequate disclosure. This highlights the need for improved disclosure to prospective franchisees,” Mr Keogh said.

“This information is vital as it allows them to make better informed decisions, and a lack of disclosure may result in substantial harm to the franchisee.”

As part of this initiative, the ACCC will assess important documents franchisors provide to potential franchisees, to check whether they clearly and accurately disclose information that is crucial for potential franchisees to consider before they sign agreements or pay non-refundable money.

The ACCC will share some of its findings at the completion of this project to improve the quality of franchisors’ disclosure in this sector, as well as to assist potential franchisees to understand the information made available, and to ask questions if there is a lack of information.

This project follows the significant work the ACCC has completed in the franchising sector during the last six months, including accepting a court enforceable undertaking from Husqvarna Australia for alleged breaches of the Franchising Code, a voluntary commitment by Luxottica Franchising Australia to improve transparency for franchisees, and appearing before the Parliamentary Inquiry into the Franchising Code of Conduct.

“Franchisors need to take their disclosure responsibilities seriously. The recent Ultra Tune Australia case is a warning to all franchisors to meet their disclosure obligations.

“We also encourage everyone thinking about buying a franchise to carefully examine and understand their disclosure document, ask questions, and get professional advice before signing any franchise agreements,” Mr Keogh said.