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Allphones cop $3million fine for franchise abuse

The ACCC has won a case for 55 current and former Allphones franchisees for $3 million in damages from Allphones and its executives for their involvement in ‘unconscionable conduct’ as well as bullying their franchisees.

AllphonesAllphones was accused by the ACCC of both bullying franchisees and breaking their franchise contract terms, at times withholding stock, stopping a franchisee’s income while simultaneously requiring that franchisees continue to bank daily takings in Allphones’ account and meet other obligations like rent and wages and threatening franchisees with ‘breach’ notices suggesting the company would take steps to terminate their franchise.

By consent, Justice Foster of the Federal Court declared these tactics were unconscionable and that Mr Donnellan, Tony Baker and Ian Harkin were knowingly concerned in the unconscionable conduct.

The conduct began in 2004 when Allphones commenced a national expansion plan at the direction of its board and newly appointed CEO, Matthew Donnellan. At that time, Allphones structured its franchise system so that the company had control over both the stock and income of franchisees.

As it grew, Allphones represented to potential franchisees that their franchise system was like ‘a true partnership’ where they shared the profit, assuring franchisees that Allphones would use its bargaining power to their benefit.

Even while making these representations however, Allphones negotiated commissions and bonuses with suppliers which it did not disclose to franchisees. Allphones also altered documents from carriers, disguising charges. The court has ordered by consent that in both instances withholding this income was unconscionable.

“This is a blatant case of promising and even contracting to do one thing but doing aomething completely different – to the detriment of franchisees,” acting ACCC chairman Peter Kell said yesterday.

“Bullying franchisees by withholding stock and income is egregious conduct that will not be tolerated,” Mr Kell said. “This is some of the worst conduct encountered by the ACCC in dealing with franchisees. It was both systemic and prolonged. I can only imagine how a franchisee caught on the wrong side of such policies, with their livelihood on the line, must have felt.”

Justice Foster of the Federal Court declared that since 2004 Allphones engaged in misleading and deceptive conduct, contravened the Franchising Code of Conduct and engaged in unconscionable conduct in its dealings with franchisees.

“This is an important result for the franchisees. But just as importantly, it sends a broader message to franchisors and those who advise them, that compliance with agreements is fundamentally a two way street. This case builds on a number of others where the ACCC has taken action to protect the rights of small businesses,” Mr Kell said.

Allphones issued a statement yesterday thanking their supporters during the ACCC case against the organisation.

“Allphones thanks its franchisees for their support during this period. Throughout this period, sales have continued at record levels,” the company’s statement read.

“Allphones remains Australia’s largest independent mobile communications retailer and the company works hard so that its franchisees enjoy the benefits flowing from this.”

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David Olsen

David Olsen

An undercover economist and a not so undercover geek. Politics, business and psychology nerd and anti-bandwagon jumper. Can be found on Twitter: <a href="http://www.twitter.com/DDsD">David Olsen - DDsD</a>

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