ACCC to target take-away food and fitness franchises in new audit campaign

Take-away food and fitness franchises have been put on notice, as yesterday the Australian Competition and Consumer Commission launched a crackdown on franchises breaching the code of conduct.

Speaking at the Legal Symposium at the National Franchise Convention, ACCC deputy chairman Michael Schaper said on Sunday it will audit industries which are generating a disproportionate number of complaints.

“In the ACCC’s next round of audits we will be looking at franchisors from the take-away food and health and fitness industries, however, our audits will not be restricted to these two sectors,” he says.

Schaper told SmartCompany this approach of identifying specific franchising sectors to target is a new one for the commission.

“This is us saying from time to time we will order specific sectors and say they’re in our interest,” he says.

“Our audits have always been based on a number of factors – the prior history of a company, the number of complaints received, anything which suggests it could be of interest, or it could just be a random audit as part of our compliance checks.”

Schaper says the best approach firms can take is to talk to their advisors if they think they have a compliance issue or come to the ACCC proactively.

“The good news is the audits we’ve conducted up until now have shown a high degree of compliance. When the audits were first introduced a number of people thought there would be high number of breaches, but this hasn’t been the case.”

Schaper was unable to reveal the number of complaints received against franchises in the take-away food and fitness industries, but says the majority of complaints fall into two categories: disclosure and false representations.

“Disclosure complaints arise when a franchisor should have revealed something and didn’t. The second complaints we receive the most of is a general provision under Australian Consumer Law about false representations or claims,” he says.

“With false representation, this occurs when the franchisor has misrepresented something to a franchisee, often this will be to do with earnings.”

Schaper says these complaints are the most common across the whole of the franchising sector.

“Last financial year there were 122 complaints about failure to disclose information and 107 about misleading conduct or false representations,” he says.

“But when you think about this in context it’s not huge. There are about 73,000 franchisees and between 11,000 and 12,000 franchise systems. But the complaints matter, particularly to the people who make them.”

To determine which industries will be the focus, the ACCC keeps a check on the complaints received by its hotline to see which sectors are generating the most interest and activity.

The ACCC was given auditing power in 2011 and since then has audited 50 franchises, 16 of which have occurred in the last six months.

But unlike a typical audit, the ACCC only has the power to request specific documents.

These documents include disclosure documents, marketing fund statements and franchise agreements.

“It would be better termed an information confirmation power,” Schaper says.

“We’ll contact the firm and tell them what we’re looking for and then they’ll have three weeks to produce it. We made a submission to the Wein review of franchises and said these powers should be made broader, so then we can get a full snapshot.”