Failure to disclose – ACCC issues penalties against Jim’s Group

Jim’s Group Pty Ltd ACN 101 925 268 (Jim’s Group) in its capacity as franchisor of the Jim’s Dog Wash franchise has paid $24,420 in penalties after the Australian Competition and Consumer Commission (ACCC) issued two (2) infringement notices for alleged breaches of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Code) and an alleged contravention of the Australian Consumer Law (ACL).

Failure to disclose required particulars of former franchisees

The first infringement notice issued by the ACCC, related to an alleged failure by Jim’s Group to disclose relevant information to prospective franchisees as required by the Code.  Further, it was alleged that Jim’s Group provided a ‘significant understatement’ with regards to the number of former franchisees to exist within the Franchise system.

Clause 8(6) of the Code provides that after entering into a franchise agreement, the franchisor must update the disclosure document within 4 months after the end of each financial year.  The purpose of  the disclosure document is to:

• give a prospective franchisee or a franchisee proposing to renew or extend the term or scope of a franchise agreement information to help them make a reasonably informed decision about the franchise; and
• give a franchisee current information that is material to the running of their franchised business.

In addition, clause 32 of the Code provides:

• a former franchisee may give a franchisor a written request that the former franchisee’s details not be disclosed to a prospective franchisee;
• if such a request is made, the franchisor must not disclose the former franchisee’s details to a prospective franchisee; and
• a franchisor must not engage in conduct with the intention of influencing a former franchisee to make, or not make, such a request.

The ACCC’s ‘Franchising model disclosure document’ guidance template (Model Disclosure Document) emphasises that all “sufficient” contact details such as the phone numbers and email addresses of former franchisees, should be provided in the Disclosure Document.

Misrepresentation of cooling off rights under the Code

The second infringement notice issued by the ACCC was regarding an alleged false and misleading representation.  The ACCC alleged that Jim’s Group misrepresented to a Jim’s Dog Wash franchisee that its cooling off rights under the Code lapsed 14 days after entering into the franchise agreement or the actioning of a payment to the franchisor, whichever was earlier.

This stance reflects the previous position in the Code, prior to the amendments which were made on 1 July 2021.  At present, there is no longer a requirement of cooling off rights linked to the payment of money. Clause 26(1) of the Code now provides that a franchisee may terminate a franchise agreement within 14 days after entering into the agreement.

In a statement released on 6 October 2022, ACCC Deputy Chair, Mr Mick Keogh said:

“By making this representation, Jim’s Group 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.”

Takeaways

The ACCC are actively monitoring and strictly enforcing compliance with the Code thus, the penalties paid by Jim’s Group serve as an important warning to franchisor’s to ensure that they are up to date with their current rights and obligations.  In his statement, Mr Keogh reiterated:

“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”.

Links and further references

Legislation

Competition and Consumer (Industry Codes—Franchising) Regulation 2014

Further information about obligations as a franchisor under the Code

If you need advice on understanding your obligations as a franchisor under the Code, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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