Hot Topics: Behind the Headlines

behind the HEADLINES

service franchisor’s furious lockdown letter and early court win

The founder of home services company Jim’s Mowing responded to Victoria’s fourth major lockdown in 12 months by sending an open letter to the Victorian government questioning the logic and science behind restricting garden maintenance workers from working alone outdoors, according to a media report. In his letter, Jim Penman described the government’s decisions as “continued mismanagement causing terrible harm” and went on to describe how his franchisees were suffering from suicide attempts and marriage breakdowns as a result of lockdown restrictions. Penman is also supporting a franchisee who is seeking compensation from the Victorian State Department of Health and Human Services (DHHS) for lost income during the seven-week lockdown in 2020. If successful, the claim could set a precedent for hundreds of other business owners similarly impacted by the lockdown. Meanwhile, Penman and his franchisee have a had an early win in their bid for compensation after the Victorian Civil and Administrative Tribunal deputy president ruled the case would not be consolidated with those of other businesses seeking similar outcomes, according to a media report. The DHHS had sought that the seven cases should be heard jointly on the preliminary question of whether the chief health officer had sufficient grounds to authorise the use of his emergency powers, arguing that they would all cover the same or similar ground.

Franchisor’s $23m penalty for misleading franchisees

The company which formerly operated Jump Swim Schools has been ordered to pay penalties of $23 million for deceiving franchisees, and its managing director Ian Campbell must pay $500,000 in compensation and a penalty of $400,000, according to the Australian Competition and Consumer Commission (ACCC). A Federal Court action instigated by the ACCC found that Jump Loops Pty Ltd, the company which formerly operated Jump Swim Schools and which is now in liquidation, falsely represented to 174 franchisees between March 2016 and July 2019 that they would have an operational swim school within 12 months of signing a franchise agreement. Most franchisees never received an operational swim school, while Jump accepted payments from 127 franchisees when it knew there was no reasonable basis that they would be able to supply a swim school within 12 months, or a reasonable period of time. Despite the severity of the $23 million penalty levied against Jump Loops Pty Ltd, the company is in liquidation and the penalty is unlikely to be paid. However the $500,000 in compensation to be paid by Ian Campbell is expected to be distributed across 131 franchisees. The court ordered Campbell be restrained from involvement as a franchisor in a business in Australia for three years, and from making representations about timeframes or wrongly accepting payment relating to a franchise for a period of five years. Ian Campbell is currently based in the United States, where he has launched swim schools under the Jump! and Blast brands. Media reports indicate franchisees of these in the United States are experiencing the same problems with massive delays in the opening of swim schools.

Jump Loops collapsed in 2019, and the franchise with 60 swim schools was bought out of liquidation by the Belgravia Group, which operates the business today.

listed franchisors commit to gender balance initiative

Two publicly listed Australian franchise groups have set targets to achieve a gender representation of at least 40% females in executive leadership roles by the year 2030 as part of diversity initiative launched last year. The two listed franchise brands, Domino’s Pizza Enterprises, and Tabcorp Holdings, have both committed to the 40% target, however are already very close. Of the 10 executive leadership roles at Tabcorp, three are already

held by females, however of the 12 executive leadership roles at Domino’s, just one is currently held by a female. The 40:40 Vision initiative is being led by superannuation funds manager Hesta to create gender balance in the leadership of ASX200 companies, with at least 40% of roles held by females, 40% by males, and the remaining 20% held by any gender. Two other listed franchisors which have already achieved 50% female representation in executive leadership roles include fuel retailer Ampol, and banking group ANZ, although neither are signatories to the initiative.

Franchisor’s $50m fine for franchisees’ conduct

Telecommunications company Telstra has been ordered to pay $50 million in penalties for engaging in unconscionable conduct after the Federal Court found sales staff in five licensed Telstra stores falsely represented mobile phone contracts sold to indigenous customers, according to an Australian Competition and Consumer Commission (ACCC) statement. The $50 million penalty is the second highest penalty ever imposed under the Australian Consumer Law. The Federal Court found that sales staff in five Telstra-branded stores acted unconscionably in signing 108 indigenous customers to post paid contracts they did not understand and could not afford.

The sales practices included manipulation of credit assessments, misrepresenting products as free, and exploiting the social, language, literacy and cultural vulnerabilities of indigenous customers. Telstra admitted liability and has agreed to a court-enforceable undertaking to refund affected customers, review its processes, expand its indigenous hotline and improve its compliance program.

disclosure documents to be made available to public

The disclosure documents of franchise brands operating in Australia will be made available to the public from next year following the announcement of $4.3 million in funding over four years for a Franchise Disclosure Registry, according to a government announcement.

Establishing a public register of franchise brands was a key recommendation of the 2018 Franchise Inquiry, however no further information about the register has been available until now.

The Franchise Disclosure Registry was first announced in the 17th paragraph of a media release by Small Business Minister Stuart Robert released following the recent launch of the Australian Government’s 2021-22 Budget. According to the Minister’s release, the new registry is “designed to increase transparency in the franchising sector and the ability of prospective franchisees to make an informed decision before entering a franchise agreement”. Supplementary information provided to key stakeholders by the Department of Industry indicates that the registry will be released in early 2022 with a transition period to all franchisors to understand their new obligations before the Registry is mandated. Draft regulation to support the creation of the Registry will be developed later this year, and will need to balance the appropriate treatment of franchisors’ commercially-sensitive information against the information to be made available to potential franchisees. Franchisors will be required to provide updated disclosure documents each year, however no further details about the nature of the Registry, or which government agency will ultimately be responsible for its operation are available at this stage. Former Small Business Minister and current Australian Small Business and Family Enterprise Ombudsman (ASFEO) Bruce Billson says the Registry will provide potential franchisees with vital information needed before signing a franchise a agreement and will help restore public confidence in the sector.

The concept of a register of franchise brands was also a recommendation of the 2008 Franchise Inquiry, but not adopted by the then Labor government due to concerns that such a move might imply endorsement of brands listed on the register, however the register concept 13 years ago did not extend to making disclosure documents publicly available.

hardware giant acquires flooring franchise group

Home improvement retailer and hardware chain Bunnings will acquire flooring franchise group Beaumont Tiles pending regulatory approval, according to a media report. Beaumont Tiles, which will remain separate and distinct from Bunnings, will benefit from investment in its future growth while Bunnings will capture trade and consumer customers who require specialised expert service related to flooring that is not offered through the store’s warehouse format. Founded in South Australia, Beaumont Tiles has been a family owned business for more than 50 years.

Jason Gehrke | director FrANchise Advisory ceNTre

Franchisor fined $1.9m for misleading franchisees

The Federal Court has ordered courier franchise Megasave Couriers Australia to pay $1.9 million in penalties and the company’s sole director Gary Bourne $120,000 for making false or misleading representations to potential franchisees, according to a statement by the Australian Competition and Consumer Commission (ACCC). In court proceedings in March, Megasave admitted it misled potential franchisees about guaranteed minimum weekly incomes of around $2,000 per week, and guaranteed annual income of around $91,000 if they bought a Megasave franchise. The representations were made in promotional statements and marketing material on Megasave’s website and in online advertisements, as well as in documents and communications provided to prospective franchisees. However, during this time Megasave was not paying existing franchisees the promised minimum weekly payments, and did not have sufficient revenue to pay existing or potential franchisees in accordance with the representations it was making. Megasave and Gary Bourne have also been ordered to pay $500,000 in partial redress for the losses suffered by affected franchisees. The court has also banned Megasave director Gary Bourne from managing a corporate for a period of five years.

Accc releases new resources for potential franchisees

The Australian Competition and Consumer Commission has released new online resources for prospective franchisees covering business, financial, and legal issues including a series of case studies and insights to provide clearer interpretations of content. To access these resources, visit: https://www.accc.gov.au/ update/franchising-is-it-for-you