The ACCC has continued its efforts to stop “dodgy” franchisees from misrepresenting their business to prospective franchisees.
Recently, a franchisor based in Melbourne trading as Coverall Cleaning Concepts which franchised commercial cleaning businesses was caught by the ACCC for unfair dealings and misrepresenting facts to prospective franchisees.
The ACCC and Coverall Cleaning Concepts ultimately settled the case brought by the ACCC however the ACCC specifically sought orders from the Federal Court based on a statement of agreed facts. The owner of Coverall Cleaning Concepts, Mr Brett Jones, amongst other matters, admitted to the following:
1. Mr Jones failed to include information in the franchisor’s disclosure document about the potential earnings of prospective franchisees. Mr Jones assured two prospective franchisees that they would earn $4,000 and $5,000 respectively per month. Mr Jones submitted that he did not realise that this amounted to a representation to a prospective franchisee regarding his/her potential earnings. Mr Jones firstly, had no reasonable grounds to provide these numbers and secondly, the inclusion of this information in a franchisor’s disclosure document is prohibited under the Code.
2. Mr Jones also withheld money owed to a franchisee for completed work but continued to charge this franchisee a franchise fee.
The Federal Court held that Mr Jones and Coverall Cleaning Concepts were guilty of unconscionable conduct and had provided false and/or misleading representations to franchisees. Mr Jones was also fined $30,000 personally and Coverall Cleaning Concepts was fined $500,000.
As noted in our April LawAlert, franchisors must acknowledge that as of 1 January 2015 the new Franchising Code is in force and accordingly, franchisors have a statutory requirement to act in good faith. This means all franchisors must ensure their disclosure documents are accurate and correctly contain the required information.