Two brands fined for Disclosure Register updates
The first fines for failing to update a franchisor’s profile on the Australian Franchise Disclosure Register have been issued to pawnbroking chain Cash Converters and travel agency group MTA, according to an Australian Competition and Consumer Commission (ACCC) statement.
The fines, issued as infringement notices by the ACCC under the Franchising Code of Conduct, cost each brand $16,500, and serve as a warning to franchisors to update their profile on the Register each year.
The ACCC allege that Cash Converters and MTA each failed to meet their obligation to annually update or confirm franchisor information on the Franchise Disclosure Register as required by the Franchising Code of Conduct. The ACCC said that failure to maintain up to date information on the Register undermines transparency for prospective franchisees and the reliability and integrity of the Register. Read more
Nearly one quarter of Disclosure Register listings out of date
Following the recent fines issued by the ACCC against franchisors Cash Converts and MTA for failing to update their profiles on the Franchise Disclosure Register, the Franchise Advisory Centre reviewed the Register in late June and discovered 24%, or 496 out of 2,073 listings are shown as out of date.
Franchisors are required to review and update their listings on the Disclosure Register annually, similar to the annual obligation to update Disclosure Documents.
Entities with Disclosure Register listings showing as “Out of Date” range from very small to very large networks (some of which include household names) from across Australia and even high-profile international brands. Some out of date listings also include master franchisees, but whose parent brands are also listed and show as current. Some small franchise businesses may also have ceased to operate and not yet been removed from the Register.
Since 15 November 2022 it has been mandatory for entities that offer franchise agreements in Australia to be listed on the Franchise Disclosure Register, including franchisors and master franchisees. However the Register is not a definitive list of franchise brands, as multiple entities (eg. master franchisees) utilising the same brand are required to be registered. Out of the 2,073 listings on the Register currently, it is estimated that these represent a total of 1,200 unique franchise brands operating in Australia.
Franchisors should urgently review their Disclosure Register listings to confirm they are current and up to date, or otherwise risk a $16,500 fine. To visit the Register, click here.
Car dealers lose Mercedes Benz appeal
Mercedes-Benz dealers in Australia have lost the appeal they filed in 2024 against a judgement handed down in 2023 which found in favour of Mercedes-Benz Australia Pacific, according to a media report.
In 2023, the Federal Court dismissed a class action lawsuit brought against Mercedes-Benz Germany by more than 80% of Australian Mercedes dealers in a 567-page ruling that found the auto franchisor was within its rights to switch its business model from a franchise arrangement in which franchisees owned their stock and could negotiate prices with customers, to an agency model in which the vehicles for sale are owned by the manufacturer, prices are non-negotiable, and agents (formerly dealers) sell the vehicles on a commission basis. The presiding judge in the original case, Justice Beach, found that the dealers’ claims failed on fundamental issues of law resulting in 36 of the 38 Mercedes-Benz franchisees who launched the action to appeal the decision.
In his ruling, Justice Beach described the case as “forensically complex although legally straightforward,” stating that further consideration needs to be given to the Franchising Code of Conduct. The Full Court rejected the dealers’ appeal, finding that dealers had not been misled about the agency move and that Mercedes-Benz had not engaged in unconscionable conduct. A spokesperson for the Australian Automotive Dealer Association (AADA) has expressed the industry’s disappointment in the ruling, reiterating Justice Beach’s sentiments around the Franchising Code and calling on the Federal Government to implement election promises to protect franchisees against unfair contract terms and unfair trading practices.
The initial case finding and subsequent upholding on appeal is expected to set an important precedent for future franchisee/franchisor litigation. Read more
Union beats fast food giant in SA wages case
McDonald’s has been ordered by a full bench of the Fair Work Commission to negotiate pay and wage conditions for workers in South Australian franchises with the Shop, Distributive and Allied Employees Association (SDA), according to a media report.
The ruling is a major win for the SDA as a test case to use Labor’s new multi-employer agreement laws to bring franchised businesses to the negotiating table. The South Australian decision impacts 5,000 workers and 18 franchisees in the state, but if the SDA secures a multi-employer deal it will then be able to extend the ruling to the remainder of McDonald’s outlets across the country. Multi-employer deals can be achieved through agreement or arbitration.
The Fair Work ruling will also potentially facilitate unions to force non-unionised franchises into bargaining without first securing the majority of the workforce. Franchises without collective agreements which may be impacted by the ruling and its implications include retail and fast-food businesses many of which employ low-paid workers, and hotel chains and restaurant groups with low levels of union membership. Read more
Mr Potato founders go to ground as brand collapses
The influencer founders of collapsed food brand Mr Potato have failed to respond to media inquiries or reply to messages from their former staff and are reported to be on a road trip around Australia as their business went into liquidation according to a news coverage.
Workers employed by former Miss World entrant Jess Davis and professional basketball player Tyson Hoffman are owed outstanding wages, and are reported to have never been paid their mandatory employer superannuation contributions. The Australian Taxation Office (ATO) successfully applied on July 4 to liquidate the company over a $151,000 tax debt.
Mr Potato was founded in Glenelg, South Australia in 2018, and grew to 13 outlets. In 2023, the business owners claimed to have plans to open 40-50 locations that year alone, and had 600 franchise applications at the time.
However franchisees that have closed claimed they never made a profit, had to sell their homes to support their businesses, and in some cases, ultimately went bankrupt. The last two Queensland locations closed in February this year, and the brand’s final store was trading sporadically as funds ran dry to pay suppliers until closing permanently at the end of June. Staff in a WhatsApp group with Hoffman claimed they were owed overdue wages despite repeated requests for payment, and eventually ceased receiving replies altogether.
Meanwhile the founders announced earlier this year that they were taking a Mr Potato food truck on an Australia-wide road trip to raise money for charity, and were last known to be in Alice Springs in June according to Mr Potato’s Facebook page.
No mention of the closure of its franchise outlets or the brand’s liquidation is made on the Facebook page, meanwhile the Mr Potato website is no longer accessible. In a previous statement to media in response to the closure of franchised stores, Hoffman appeared to blame franchisees by claiming that factors including personal, family and health challenges can lead to business failure, but did not comment on the viability of the business model or the subsequent closure of Mr Potato’s company-owned store. Read more 1; Read more 2; Read more 3
Share price plunge for auto accessory chain
Shares in listed company Bapcor, the parent company of auto aftermarket franchises including Autobarn, Midas and Autopro, has suffered a 28% fall in its share price in just one day following the announcement of $50 million in balance sheet writedowns, according to a media report.
Three directors of the company simultaneously resigned with the announcement, which also warned of weaker future earnings with net profit after tax for the F25 year expected to be between $31 million and $34 million, down from an annual profit of $126 million four years ago.
Shares in the business dove 28% to $3.69. Bapcor was the target of a private equity takeover offer last year which valued the business at $5.40 per share for a capital value $500 million greater than its current value. Bapcor has closed or relocated 45 sites in the past year, which led to additional costs. Read more
Octogenarian to accelerate change at pizza brand
Domino’s Pizza Enterprises (DPE) chairman Jack Cowin wants to see faster decisions and improvements in store performance as the network following the resignation of CEO Mark van Dyck who announced his departure after less than eight months in the role, according to a media report.
Cowin, who is 83 years old and the largest single shareholder of Domino’s, is also the owner of fast food chain Hungry Jack’s (which is not named after Cowin), and is a former pioneer of KFC in Australia.
DPE’s share price rose to more than $150 during the height of the pandemic as demand for food home-delivery spiked, but has since retreated to less than $20 per share as demand has softened, profits declined and writedowns have impacted the business. Cowin is the confident of the business’ future but is now focused on closing unprofitable stores opened during the pandemic, and improving the food offer rather than primarily competing with other fast food chains based on Dominos’ technology platform. Read more
Franchisee cops record penalty for sexual harassment
A 60-year-old Sydney operator of a Mad Mex Mexican food outlet in Sydney has been ordered by the Federal Court to pay a total of $305,000 for the sexual harassment of a young international student who worked in his outlet, according to a media report.
Sher “Sonny” Khan was found to have harassed the young woman while she worked at the chain’s Sydney Norwest location in early 2023. The harassment was alleged to include inquiring about the sexual activities of the worker, showing the worker pornography and sex toys, as well as some physical contact.
The court ordered Khan to pay the worker $160,000 in damages, plus aggravated damages and an additional $130,000 for past and future lost earnings. The $160,000 damages amount set a new record for a sexual harassment case, which previously peaked at $140,000. Read more
Franchised telco fined $100m for unconscionable conduct
Telecommunications company and franchisor Optus Mobile Pty Ltd has been penalised $100 million after admitting to engaging in unconscionable conduct when selling unwanted, unneeded, or unusable goods and services to vulnerable and disadvantaged customers, according to an Australian Competition & Consumer Commission (ACCC) statement.
Optus has admitted that between August 2019 and July 2023, staff in 16 stores around Australia engaged in unconscionable conduct including pressuring customers to purchase expensive phones, accessories, and plans which they could not use or afford, often resulting in consumers being pursued by debt collectors; failing to explain terms and conditions appropriately; and disregarding whether consumers had Optus coverage where they lived. The majority of the consumers impacted were indigenous or vulnerable individuals living with a disability.
In addition, Optus’ senior management were aware of inappropriate sales practices, but the company’s systems and controls were unable to stop the behaviour.
Optus agreed to pay a $100 million fine as part of an agreement with the ACCC which also includes an undertaking to provide remediation and start compensating consumers, address claims through a clear resolution process, review its complaints handling, improve staff training, change its debt collection systems, change systems and procedures, and make a $1 million donation to an organisation facilitating digital literacy of indigenous Australians.
The penalty must be approved by the Federal Court who will determine if it is appropriate and may impose other orders. Read more 1; Read more 2
Fresh perspectives to improve franchise recruitment
A four-part live and interactive online learning series for franchise recruitment managers in will provide franchise insights into effective strategies and tactics to maximise franchise recruitment effectiveness.
The Effective Franchise Recruitment course will be held in four parts of two hours each from 10am-12noon AEST in September on 16th, 17th 23rd and 25th. The course is designed for both new and experienced recruitment personnel to explore new approaches to franchise recruitment that can substantially improve the quality of franchise candidates attracted to a brand while also lowering the acquisition cost per inquiry and new franchisee. For more details, click here.
Jason Gehrke is the Director of the Franchise Advisory Centre and has been involved in franchising for more than 30 years at franchisee, franchisor and advisor level. He advises both existing and potential franchisors and franchisees, and conducts regular education courses for franchisors in Australia and overseas. He has been awarded for his franchise achievements, and publishes Franchise News, Australia’s only fortnightly electronic news bulletin on franchising issues.
www.franchiseadvice.com.au