As many businesses operating within the franchising space are aware, from 15 April 2022, further amendments to the Franchising Code of Conduct (Code) came into effect. These amendments not only increased the disclosure requirements for franchisors, but they also increased penalties for breaches to the Code. For more information on these amendments, see our previously published insight article here. The introduction of the National Franchise Disclosure Register has also placed greater obligations on franchisors. For more information on the National Disclosure Register, see our previously published insight article here.
On 6 October 2022, the well-known household name, Jim’s Group Pty Ltd (Jim’s) was issued two infringement notices by the ACCC. The ACCC alleged that Jim’s had breached the Code in its capacity as franchisor of the Jim’s Dog Wash franchise. Jim’s was fined a total of $24,420 for the two alleged breaches.
The first infringement issued to Jim’s by the ACCC was for failure to provide a compliant disclosure document for the Dog Wash franchise. Under the recent amendments to the Code, franchisors are required to disclose specific details about former franchisees within the disclosure document. Jim’s is alleged to have failed to provide contact details for former franchisees and “significantly” understated the number of former franchisees of the Dog Washing franchise.
The second infringement issued to Jim’s by the ACCC was for an alleged false or misleading representation of cooling off rights under the Code to a Jim’s Dog Wash franchisee. The Franchisee was allegedly informed that the cooling off period ended 14 days after the franchise agreement was entered into, or a payment was made to the franchisor, whichever was earlier. However, pursuant to clause 26(1) of the Code, a franchisee is able to terminate the agreement and receive a refund within 14 days of signing the franchise agreement, regardless of whether the deposit has previously been paid to the franchisor.
ACCC Deputy Chair, Mr Mick Keogh has said that Jim’s alleged misrepresentation “may have discouraged Jim’s Dog Wash franchisees from exercising their cooling off rights where they paid a deposit some time before they entered into a franchise agreement”.
Mr Keogh also noted that “the ACCC will not hesitate to take enforcement action against franchisors who are failing to meet their obligations under the Code or are misleading prospective franchisees about their rights under the Code.”
The news of action taken against Jim’s by the ACCC highlights the importance for franchisors reviewing and updating disclosure documents and ensuring information is up to date and correct on the national register. Additionally, franchisors need to be mindful of their obligations under the code and the importance of accurately representing the rights of franchisees under the Code.
