The Australian Consumer Law and Franchisees' Obligations
Much has been written about franchisees’ obligations under the franchise agreement, but franchisees should also remember that they must comply with all other relevant laws and regulations governing franchising and the conduct of their franchise business.
The key pieces of legislation and legal principles that relate to franchising in Australia are:
• the Franchising Code of Conduct (the Code);
• laws relating to fair trading and business operations, primarily the Competition and Consumer Act 2010 (Cth) (the CCA), the Australian Consumer Law (ACL); the Australian Securities and Investment Commission Act 2001 and the Corporations Act 2001; and
• the Common Law.
AUSTRALIAN CONSUMER LAW
The Australian Consumer Law (ACL) was designed to protect consumers and ensure fair trading in Australia. Consumers have the same rights across Australia, regardless of where they live, where they buy goods or services or where a supplier is located.
The ACL prohibits misleading and deceptive conduct in trade or commerce. The basic principle is that businesses are not allowed to make statements that are misleading or deceptive, or which are likely to mislead or deceive. This rule applies to their advertising, their product packaging, and any information provided by the business owner or its staff. It also applies to any statements made online or in social media, such as testimonials.
HARVEY NORMAN CASE
Recent action by the Australian Competition and Consumer Commission (ACCC) provides a reminder that such laws also apply to franchisees. It is particularly important for franchisees operating in a retail environment to be vigilant in respect to their obligations under consumer law.
The ACCC instituted proceedings in the Federal Court against a number of Harvey Norman franchisees for misleading and deceptive conduct. The Court found that each franchisee had made a number of false or misleading representations to consumers about their consumer guarantee rights. The allegations against each of the franchisees differed, however examples of the misrepresentations included representations that:
• the franchisees had no obligations to provide remedies for damaged goods unless notified within a short specified time, such as 14 days;
• the franchisees had no obligation to provide an exchange or refund for faulty goods supplied;
• the consumer had to pay a fee for the repair or return of faulty goods; and
• the franchisees had no obligation to provide a remedy independently of the relevant product manufacturer.
The representations were made orally by staff located inside the franchised stores and one franchisee stated on its receipts that “no claims will be honoured on damaged goods unless notified within 24 hours of delivery or pick-up.”
The Court ordered nine of the Harvey Norman franchisees to pay a total of $243,000 in civil pecuniary penalties for making such misleading representations to customers regarding consumer guarantee rights, with a further decision to be made later in the year in relation to a tenth franchisee.
“These penalties send a strong message to all businesses, including franchisees, that they must not mislead consumers about their rights to repair, replacement or refund for faulty goods under the Australian Consumer Law,” ACCC Chairman Rod Sims said.
“Complaints about consumer guarantees represent a quarter of the consumer protection complaints that the ACCC receives each year. The ACCC has moved from raising awareness of law to taking enforcement action where it believes consumers have been misled about their rights under the consumer guarantee provisions of the ACL.”
The ACL prescribes nine consumer guarantees which apply to goods. They are, in summary:
1. that goods will be of acceptable quality;
2. that goods will be reasonably fit for any purpose the consumer or supplier specifies;
3. that the description of the goods is accurate;
4. that goods will match any sample or demonstration model and any description provided;
5. that the goods will satisfy any express warranties;
6. that the supplier has clear title to sell the goods, unless the supplier alerted the consumer before the sale that they had ‘limited title’;
7. that the supplier has undisturbed possession of the goods;
8. that the goods are free from any hidden securities or charges; and
9. manufacturers or importers guarantee that they will take reasonable steps to provide spare parts and repair facilities for a reasonable time after purchase.
For goods purchased on or after 1 January 2011, where a good develops a major fault, consumers have a right to a replacement or refund from the supplier of the good. For goods that develop a minor fault, a consumer has the right to have the good remedied (at the suppliers’ discretion) within a reasonable time. If the supplier fails to do so, the consumer can either reject the goods and get a refund or have the problem fixed and recover reasonable costs of doing so from the supplier.
ADVERTISING AND SOCIAL MEDIA
There are no specific laws that govern social media and franchisees that advertise using social media platforms need to ensure that their online practices comply with the ACL.
The laws which prohibit businesses from advertising claims which are false or are likely to mislead or deceive consumers apply to social media in the same way as they would apply to traditional advertising channels. Franchisees should not make any claims on Facebook, Twitter, Instagram or any other social media page or site that they would not ordinarily make in other forms of advertising.
Example: Black Coffee franchisee tweets that their franchise network is the first Australian network to sell 100 per cent organic coffee when they have done no research to support this claim. It is established that White Coffee franchise network had been selling 100 per cent organic coffee well before Black Coffee. The tweet is likely to be false, misleading or deceptive.
Additionally, recent case law suggests that businesses are responsible for the content displayed on their social media pages or sites in relation to the businesses regardless of whether the content was posted by someone employed by the business or by a consumer.
Example: A customer posts on ABC’s Facebook page that ABC’s products are cheaper and of a better quality than DEF’s products. ABC is unsure if this statement is accurate, but leaves the post on its Facebook page. ABC may be responsible for the misleading claim made by its customer.
To minimise your risk it is recommended that you routinely monitor your social media pages and sites and remove any posts which may be false, misleading or deceptive as soon as you become aware of them. The ACCC has identified two key factors to determine the amount of time you need to spend monitoring your social media: the size of your company and the number of your followers.
The ACCC assumes that larger companies with a large number of followers will have the resources and systems to be made aware of false, misleading or deceptive posts or tweets and would expect that they would act promptly to remove them.
Small companies, such as most franchisees, with fewer followers are unlikely to have the same resources to monitor their social media as larger companies. Given the small number of followers, there is less potential for widespread public detriment from public posts and the ACCC would not hold smaller companies to the same standard.
Notwithstanding, the ACCC can require companies to substantiate any claim on their social media pages and can take court action where it identifies a breach of the law. The ACCC is likely to pursue cases of false, misleading or deceptive conduct if:
• there is the potential for widespread public detriment if the claim was relied on; • the conduct is particularly blatant; or
• other claims in respect to that business have previously been brought to its attention.
The ACCC recommends that you offer a refund to any customer who has made a decision to purchase your product or service based on a false, misleading or deceptive claim they saw on your social media page or site.
WHAT DOES THIS MEAN FOR YOU AS A FRANCHISEE?
Franchisees must be as vigilant as any other business owner to ensure that they comply with the ACL. As the Harvey Norman case shows, franchisees must also educate their employees on the rights of consumers and consumer guarantees.
Franchisees should also check their receipts or refunds policies to ensure compliance with the ACL, even if these have been prepared by the franchisor, and should be particularly attentive with regard to claims made over social media and content left by customers and third parties.
Bianca Sevastos is a Senior Associate at Baybridge Lawyers where she specialises in franchising and licensing, advising on all aspects of franchising industry compliance with the Code, day-to-day management of franchise systems and relationships with suppliers and franchisees.
Bianca has extensive experience and advises on a range of national and international transactions, industry master and area development rights and advises both franchisors and franchisees in dispute, obligations under the Franchising Code of Conduct and the Competition and Consumer Act.