Australia is thriving with over 1,300 franchise businesses in a range of industries, earning over $181 billion dollars in revenue and continually growing. [1]
In recent times, however, more franchisees have found themselves in a dispute against their franchisor. These problems generally arise for one of two reasons – either the franchisee has not been advised correctly or the franchisor is not fulfilling their obligations.
Jane purchased a café franchise in 2016 with the aim of running a successful and sustainable business in hospitality; she believed that a franchise would minimise financial risk and give her the training and security she needed.
The purchase price was $425,000 (not including stock) and Jane re-mortgaged her house and took out a business loan with ANZ in order to make her dream a reality.
Only a month into the café opening for business, Jane realised she wasn’t earning the amount of money that the franchisor had projected for her to reach.
In the next month, Jane was told by builders that the precinct where her café was located was starting $5 million dollars’ worth of remedial work that would take 18 months to complete. As the franchise was dependent on al fresco dining, the major construction works would take a toll on the number of customers visiting the cafe. Nothing had been disclosed by the landlord or franchisors – who denied having prior knowledge.
On top of this, Jane also received an electricity bill which was over $8,000 instead of the expected $2,600 per quarter. When she discovered that the franchisors had lied to her, she was forced to close her business.
“I didn’t predict what a terrible situation I would be caught up in,” says Jane. “It took a massive financial toll on my family and I, as well as affecting my wellbeing.”
Robert Bryden, Founder of Robert Bryden Lawyers shares his top tips that franchisees should follow in order to have the best chance in winning a dispute against a franchisor.
- Refer to initial advice and documentation
“Look at the advice you were given initially. The important things to check for include any evidence or signs of negligence and misrepresentation. Were you provided with misleading information about the sale? Were there things the franchisor did not disclose to you in order to protect themselves? Were you provided with misleading books? Make sure you have documentation and correspondence in writing, whether in the form of email chains, files or agreements with the franchisor.”
- Check the franchisor’s fulfilment of obligations
“Figure out if your franchisor is fulfilling their obligations. From the outset, were you provided with accurate and correct legal and accounting advice? Check if proper disclosure was made and find out if they are properly spending money on promotion and advertising that you are paying for that purpose. Have they provided adequate training? Where is all the supply or stock coming from? It is an issue if stock is coming exclusively from only one main location. Ensure that all hidden costs are identified accordingly.”
- Franchising Code of Conduct
“The law is a powerful tool and often favours franchisees. Utilise the Franchising Code of Conduct to your advantage – know what rights and obligations you are entitled to. The Code regulates the franchisor and franchisee relationship in various ways. Assess the disclosure document and franchise agreement which should have been provided prior to any contract signings. A dispute resolution procedure is required to be followed. Also review details about the marketing funds that the franchisor provided from the outset.”
- Mediation
“If issues cannot be resolved through direct negotiation, it is helpful to bring in an impartial third-party facilitator, such as a mediator. A mediator will bring together both parties involved for a meeting designed to find a solution. Prepare for a mediation by assessing what the problem is, what is the desired outcome and what steps need to be made to achieve that.”
Robert Bryden has over 35 years of experience in compensation law. He’s helped over 32,000 Australians to take control after a serious setback. In 2017 he established Robert Bryden Lawyers, a family-owned practice designed to show Australians that the law is there to protect them.
[1] IBIS World Industry Report X0002, Franchising in Australia, November 2018
