Behind the Headlines

$650m auto dealer class action commences

 

A class action by 38 out of 55 Mercedes Benz auto dealers in Australia against the car manufacturer has commenced in the Federal Court amid allegations the car giant failed to act in good faith in moving its franchisees to a sales commission arrangement, according to a media report.

The franchisees allege that a consultation program about the transition to a new financial arrangement to sell cars on commission that eliminates dealer pricing flexibility and other revenue opportunities was conducted as a foregone conclusion long before the adoption of the new business model in breach of the good faith provisions of the Franchising Code of Conduct. Franchisees also allege that the profitability and capital value of their businesses has been adversely impacted by the change, and that compensation should be paid. 

Mercedes Benz has stated that the new model improves the customer experience with the brand and provides greater access to data for after-sales service and is being adopted worldwide by the brand.  Read more 1;  Read more 2

Report addresses sexual harassment in retail franchises

A new report by a Victorian government agency has identified steps franchisors can take to deal with sexual harassment of frontline workers by customers in franchise outlets and more broadly in their networks.

The Preventing sexual harassment in retail franchises report produced by the Victorian Equal Opportunity and Human Rights Commission assessed whether a sample franchisor had adequate frameworks in place to prevent and respond to workplace sexual harassment. 

Victoria is the only state currently where anti-discrimination laws apply a positive duty on employers and others to take reasonable and proportionate steps to eliminate sexual harassment as far as possible. 

The Commission chose Melbourne based chain Baker’s Delight for its franchise assessment, and noted that this was not in response to any complaints, but rather to address well-understood concerning prevalence of sexual harassment in retail environments, such as bakeries, where frontline staff who serve customers are primarily female, while back-of-house roles such as bakers are filled predominantly by males. 

Bakers Delight co-operated with the Commission and has entered into a compliance agreement after finding improvements to its policies and procedures including warnings to customers and additional training that will mitigate sexual harassment risks to its workforce.  Read more 1;  Read more 2

Contempt of court proceedings against franchisor

The Australian Competition & Consumer Commission (ACCC) has initiated Federal Court proceedings against car repair chain Ultra Tune alleging the franchisor breached and/or failed to comply with multiple Federal Court orders, according to an ACCC statement.

In 2019 Ultra Tune was fined $2.6 million in the Federal Court for breaching both the Franchising Code of Conduct and the Australian Consumer Law (ACL). ACL breaches related to prospective franchisees receiving false or misleading representations, and Franchising Code breaches related to Ultra Tune’s failure to act in good faith including failing to prepare and supply marketing fund statements. The company was also found to have attempted to mislead the Court by claiming it had sent disclosure documents to prospective franchisees when it had not. 

While the fine was reduced to $2.1 million after Ultra Tune appealed the ruling, the company was still under orders to implement a compliance program to ensure no further breaches of the Franchising Code or the ACL and to provide quarterly reports on the program’s effectiveness. Ultra Tune was also under court orders to update its disclosure document on time and prepare two marketing fund statements within a specified time period. The ACCC alleges that Ultra Tune has failed to deliver on all or part of these orders.  Read more 

Beauty chain buys back 38 franchises following dispute

The private equity firm owner of beauty chain Laser Clinics Australia (LCA) has bought back at least 38 franchised clinics following a two-year dispute with franchisees, according to a media report.

Private equity giant KKR purchased LCA in 2017 when it had just 60 outlets, and doubled the brand’s footprint in Australia over the next four years. By April 2021, 52 of Australia’s 123 franchised clinics had signed a notice of dispute against KKR, Federal Court legal action pending by September that year. A settlement with franchisees was agreed after mediation recommenced in early 2022. 

KKR has reportedly paid $30 million for 38 clinics, a figure which is substantially less than the $80 million sought by the plaintiffs in their 2021 claim. LCA has 200 clinics worldwide, in which staff perform more than 2.5 million treatments each year.  Read more

Fitness franchisees assured it’s business as usual

Franchisees of Australian-based fitness chain F45 are claiming its business as usual for their gyms despite being “blindsided” by a significant earnings downgrade and the departure of nearly half the parent company’s staff and its chief executive officer, according to a media report.

F45 has reduced its expansion target from 1,500 new branch openings to 350-450, with a renewed focus on prioritising profitability and cashflow generation in a high interest rate economy. Franchisees have received an email offering support and assurance that the company’s new direction will not directly impact them, but media coverage has resulted in 

nervous gym members querying owners whether their gyms are going to close.

For a fixed monthly franchise fee, F45’s franchising model grants franchisees “territory rights” to operate in a designated area, use the F45 brand, and plug into the company’s systems and processes. F45 is scheduled to hold a network-wide meeting with franchise owners to explain the situation.  Read more 1;  Read more 2

Food chain rewards customer's customs error

An airline passenger who was fined $2,664 for breaching Biosecurity laws after arriving in Australia and failing to declare a half-eaten Subway sandwich she purchased at Singapore Airport has received a gift box from the sandwich chain containing a Subway voucher for the same value, according to a media report.

The customer has documented the entire episode in a number of TikTok videos, the first one describing how she was fined for not ticking two specific ingredients (chicken and lettuce) on the inbound passenger declaration card. That video was viewed 1.1 million times in three weeks with Domino’s Australia tagging Subway in their reaction asking them to “make it right.” A follow up TikTok shows the customer opening a giftbox from Subway which contained a Sub customer card loaded with $2,664 credit.  Read more  

Disclosure Register countdown to Nov 14

Franchisors have until November 14 to create their profile and publish disclosure information on the Australian Government’s new Franchise Disclosure Register, available online at www.franchisedisclosure.gov.au

Franchisors are required to upload certain information to create a profile on the Register by logging-in with a MyGov ID, and publish disclosure information about their franchise no later than November 14. The Register will go live and be searchable by potential franchisees and others from November 15.

The Register may contain a franchisor’s disclosure document, key facts sheet and standard form agreement, although at the very least a franchisor must provide their name, trading name, ABN, office address, phone and email contacts, and ANZSIC division and subdivision codes for the industry in which the business operates. See the Register website at www.franchisedisclosure.gov.au

Free online course for workplace compliance notices 

The Fair Work Ombudsman (FWO) has developed a free online course to assist stakeholders including franchisors and franchisees understand the requirements of a compliance notice should they be issued with one, according to a FWO statement.

The course, which takes approximately 30 minutes to complete, includes guidance on responding to compliance notices, tips to prevent common compliance mistakes, and free resources to assist businesses/employers prevent workplace problems and meet the requirements of a compliance notice. The FWO is increasingly using compliance notices as a tool to recover unpaid wages.  

Cash flow coaching kit helps SME's

The Australian Taxation Office (ATO) has developed a Cash Flow Coaching Kit to assist small and medium enterprises (SME’s) to manage their business’ cash flow, according to an ATO statement.

The kit comprises five practical tools ranging from cash flow health to an action checklist and videos and webinars on how best to use the kit’s resources. Designed for trusted advisers of small businesses, it also provides an evidence-based framework to start conversations about practical cash flow management practices and turn cash flow theory into practical solutions, among other things.  Read more