ACCC takes action against franchisor and former director for alleged breaches of franchising code

Lay your cards on the table

October 10, 2016

In January 2015, a revised Franchising Code of Conduct (the Code) was enforced. The purpose of the revisions was to introduce financial penalties and infringement notices for serious breaches of the Code.

The Code requires a franchisor to provide prospective franchisees with a disclosure document as part of its disclosure obligations. The disclosure document must disclose relevant business experience of all its officers and other materially relevant facts. Materially relevant facts can include:

any proceedings by a public agency (such as the Fair Work Ombudsman);
a judgment in criminal or civil proceedings;
an award in an arbitration against the franchisor, franchisor director, associate of the franchisor or a director of an associate of the franchisor in Australia where there are allegations, in certain circumstances, of misconduct, unconscionable conduct, dishonesty, etc.

For the first time, the Australian Competition and Consumer Commission (ACCC) has commenced proceedings in the Federal Court of Australia for breaches of the Code against Pastacup’s current franchisor Morild Pty Ltd (Morild) and the Company’s former Director.

The ACCC has alleged that the Director’s involvement in two previous Pastacup franchisor companies that became insolvent should have been disclosed by Morild to potential franchisees. The ACCC is seeking penalties of up to $54,000.00 against Morild and the Director. The matter is currently before the Federal Court of Australia and a decision has yet to be handed down.

The Fair Work Act 2009 (Cth) (FW Act) contains civil penalty provisions for matters including underpayments, general protections and breaches of the National Employment Standards.

In light of the ACCC’s decision to prosecute, Directors who are found personally liable for breaches under the FW Act or even under State or Territory laws related to workplace relations have an obligation to disclose these matters under the Code or otherwise risk being prosecuted by the ACCC.

Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.

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