Australia: Trade Practices Compliance Program

Last Updated: 17 November 2009
Article by The Franchising Team

If you are a franchisor or operate a small business, advertise goods or services, negotiate with suppliers, are a distributor or compete with other businesses, then you should have a Trade Practices Act 1974 (Cth) (TPA) compliance program (Program) in place.

The ACCC Takes Action

A recent Australian Competition & Consumer Commission (ACCC) news release again highlighted the importance for franchisors to have such a Program in place. In this instance, G.J. Gardner Homes, Netdeen Pty Ltd and its directors have given Court enforceable undertakings after an ACCC investigation into allegations that the franchisor had mislead former franchisees.

G.J. Gardner Homes is a residential building franchise with approximately 100 franchises operating in Australia and elsewhere. The investigation revolved around misleading representations about the significance of the franchisor's buying power and some specific capabilities of its building management software system. The absence of a Program and resultant failure to follow any methodology to ensure compliance with the TPA contributed considerably to a breach of section 52 of the TPA and the consequences suffered by the franchisor and its directors.

Experience shows that compliance with the TPA does not happen automatically. To the contrary, what is often considered commercial, or good business practices may fall foul of the TPA. Businesses are often surprised to learn that their supply chain, pricing practices, advertising campaigns or failure to comply with mandatory industry codes breach the TPA.

In an attempt to partially address this, the ACCC published a guide to the Program for small businesses. The guide is designed to promote awareness of the TPA in the small business sector and assist small business operators to incorporate TPA compliance as an integral part of their businesses. Similar guidelines also exist for medium to large corporations.

What Is A Small Business?

The ACCC guide does not define what constitutes a 'small business', but the Australian Standard for compliance programs describe it as:

'a philosophy of the way the business is run, rather than a matter of the number of employees'.

Section 761G of the Corporations Act 2001 (Cth) defines a small business as any manufacturing business which employs less than 100 people or any other business which employs less than 20 people.

Although, defined in legal terms under the Franchising Code of Conduct, in commercial terms, franchising is generally seen as a method of doing business. Given this generally accepted view of franchising, a franchise system is amongst others characterised by its ability to adapt quickly and effectively to market needs and changes. Philosophically, regardless of the size of any franchise system, franchising is much about the way the business is run. Assuming this to be correct, a franchisor will invariably fall within the Australian Standard definition of a small business.

The ACCC's Program Checklist

The ACCC has produced a checklist for small businesses as to how they should establish, and what should comprise a Program. In summary, these steps are:

Demonstrated Commitment

Businesses should make a board resolution evidencing their intention to implement a Program, to establish a TPA compliance culture and to appoint a TPA compliance officer. The list is not exhaustive and can include what follows or anything relevant to a business' particular characteristics.

Prioritise TPA Risk Areas

The next step is to investigate and understand the business' risk areas. These may include:

  • Price fixing and retail price maintenance.
  • Imposing conditions on the supply of goods or services to, or by a third party.
  • Unconscionable conduct.
  • Misleading and/or deceptive conduct.
  • Compliance with TPA industry codes such as the Franchising Code of Conduct.

Implementation

Once a business understands its TPA risks and have prioritised those, a Program should be developed to address all relevant issues. An effective Program must as a minimum comprise at least the following:

  • TPA training of staff and business officers.
  • A complaints handling system in relation to TPA issues.
  • Delivery recording.
  • Regular review and updating.
  • Adequate documentation to ensure compliance efforts can be substantiated.
  • Appointment of a TPA compliance officer.

Generally, the TPA compliance officer should be responsible for delivering and updating the Program, monitoring and acting on TPA related complaints and maintain records in relation to the operation of the Program. Critical to the successful implementation of a Program is the involvement of, and continuous training of staff. All new staff should also be given TPA training as part of their induction. The Program should be regularly updated to account for changes in business practices and/or the law and records should be kept relating to the delivery of the Program, the collection and resolution of TPA related complaints and how a business has reviewed and updated its Program.

Consequences Of Non-Compliance

Failure to comply with the TPA can have serious consequences. Apart from potential damage to business reputation, it can result in the imposition of a range of sanctions including requirements that the business:

  • Publish corrective advertising.
  • Pay significant fines.
  • Implement an Australian Standard compliance program which is an extremely high standard to meet.
  • Individuals 'knowingly concerned' in breaches of the TPA may also become personally liable for civil and criminal sanctions.

The consequences suffered by G.J. Gardner Homes, Netdeen Pty Ltd and its directors is just one such example. It is fair to say that they were probably treated lightly because in the words of the ACCC Acting Chairman, Peter Kell it was:

'Pleasing that Neddeen Pty Ltd and its directors cooperated with the ACCC to achieve this outcome which has included redress to two affected franchisees', .... 'this matter serves as a timely reminder to franchisors to ensure that promotional materials are accurate and truthful, and prospective franchisees are not mislead. The consequences of misinformation and ill-informed people purchasing and entering any franchise are simply bad for business - for both franchisor and the franchisee.'

Benefits

Although difficult to navigate the TPA, ignorance is no defence. A business can effectively reduce its risk by implementing an effective and business specific Program. A demonstrated commitment and documented attempts to comply with the TPA may also reduce any penalty imposed if the TPA is inadvertently breached.

An effective Program is a preventative mechanism for minimising the risk of breaching the law. It makes staff, from entry level to senior management, aware of their obligations and their business' obligations and responsibilities.

Compliance is a dynamic process and maintaining the Program is necessary to keep it relevant and effective. To ensure relevance and appropriateness, all such Programs should be subject to periodic audit, either by external experts in the field or internally.

DLA Phillips Fox is well positioned to assist clients in preparation of TPA compliance programs and periodic auditing of compliance.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit www.dlaphillipsfox.com

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

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