First on the menu – food franchisors

Earlier this year we released an update explaining the findings of a Parliamentary inquiry into the operation and effectiveness of the Franchising Code of Conduct (Code).

Continuing the crackdown on inadequate disclosure, a recent round of compliance checks undertaken by the Australian Competition and Consumer Commission (ACCC) on a sample of 12 franchisors in the food services sector has identified widespread non-compliance with the Code.

ACCC marinates on recurrent issues

Inadequate disclosure by franchisors is one of the two most frequent Code issues reported to the ACCC each year. Key issues identified in the ACCC's most recent investigations include:

  • two thirds of franchisors failed to consistently disclose useful contact details of former franchisees, such as mobile phone numbers and personal email addresses;
  • almost 60% of franchisors did not adequately disclose what essential goods were subject to supply restrictions, such as flour for a bakery, or coffee beans for a café;
  • one third of franchisors did not sufficiently disclose key unavoidable costs such as wages, rent or inventory; and
  • over 40% of prospective franchisees did not get any independent legal, accounting or business advice before entering into a franchise.

The ACCC is now assessing the individual compliance of each food services provider, and will consider whether to take enforcement action.

Time to whip disclosure documents into shape

The report serves as a timely reminder for all franchisors to remain proactive and continuous in their disclosure, and ensure compliance with the Code. The Code requires most franchisors to review and update their disclosure documents annually, and the deadline of 31 October is fast approaching.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.