29/06/2017

An $18,000 slice went to the Australian Competition and Consumer Commission following Domino's Pizza's failure to adhere to the Franchising Code of Conduct.

A franchisor is permitted to seek regular contributions from their franchisees to a marketing fund that is supposed to be used to promote the products of the franchise network.  The rules around the operation and use of the marketing fund can be set out in the franchise agreement but must comply with the Franchising Code of Conduct (“Code”) which regulates the industry and is enforced by the Australian Competition and Consumer Commission (“ACCC”).

The Code requires the franchisor to prepare annual financial statements detailing the relevant transactions in the marketing fund and to:

 (a)        provide a copy of the marketing fund’s financial statement to the franchisee within 30 days; and

 (b)        provide a copy of a marketing fund’s auditor’s report to the franchisee within 30 days.
 

Domino’s Pizza failed to meet their disclosure requirements under the Code and provided the relevant financial statement and auditor’s report to the franchisee outside the 30-day time frame period.  As a result the ACCC handed out two infringement notices for breaching the Code, both of which resulted in a total fine of $18,000.

The ACCC oversees the enforcement of the relevant parties’ obligations under the Code by issuing infringement notices for breaches.  

Each infringement notice issued by the ACCC currently comes with a $9000 penalty for a body corporate.  Whilst the ACCC can also take legal proceedings against an entity for beach of the Code, the ACCC has stated that they will try and resolve the matter through issuing an infringement notice if appropriate in the circumstances.      

Multiple infringement notices can be issued to an entity where it is believed by the ACCC that there have been multiple breaches of the Code.  Failing to comply or pay an infringement notice to the ACCC potentially exposes an entity to legal proceedings and the risk that a significantly greater penalty may be imposed by the court.

Domino’s Pizza found itself on the receiving end of two infringement notices and took steps to comply with the notices by paying the relevant fines.

The ACCC has stated that this is the first penalty issued for non-compliance of the Code and that the protection of industry codes such as the Franchising Code of Conduct is an enforcement priority for the organisation.  Had Domino’s Pizza sought legal advice as to their obligations as a franchisor under the Code, an infringement notice and $18,000 penalty could have been avoided.

If you require legal advice in terms of your obligations as a franchisor or franchisee under the Code to prevent the ACCC getting a slice of your pizza (or pie), or require assistance with a franchising agreement, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.