McDonald’s, Subway, KFC – all well-known global giants in both fast-food and franchise systems.
These companies, among many others around the world (not just within the fast food industries), are easily recognisable to us as franchisors.
However, franchise systems come in many shapes and sizes, and there are some franchises that are not quite as well-known and obvious as the ones above. Companies may even try to distance themselves from the F word, and associated franchise regulation, by telling everyone (or at least the parties contracting with them) that they are expressly not franchisors.
This situation can be seen in the recent ACCC action against the Australian subsidiary of Swedish power-tool powerhouse, Husqvarna Australia.
Husqvarna and the ACCC
Earlier this year, the ACCC took action against Husqvarna.
The ACCC was concerned that the company was in breach of the Franchising Code of Conduct (Code) and the Competition and Consumer Act (Act). Husqvarna had told its dealers that their “dealership agreements” were not franchising agreements and, consequently, they were not entitled to protections for franchisees under the Code.
The ACCC also argued that the company was likely to have contravened the Act as a result of making misleading representations and that the dealer agreements contained unfair contract terms.
In the result, Husqvarna admitted that categorising its agreements in the way it had, ‘probably’ did in fact mislead the dealers. To resolve the issue, Husqvarna also agreed to rewrite its agreements to ensure they complied with the Code and the Act. Also, the company agreed to enter an undertaking with the ACCC that it will not enforce any unfair contractual terms in the existing agreements.
Define: “Franchise Agreement”
An agreement will be covered by the Code when:
- A party, having substantial control over a business, grants another party the right to carry on that business;
- The business is associated with a specific brand name or trade mark; and
- The other party is required or agrees to pay for the right to use the brand and operate the business.
If an agreement satisfies all of the above, it will be considered a franchise agreement and will therefore be covered by the Code.
Importantly, a franchisor cannot simply attempt to waive or exclude the mandatory obligation to comply with the Code and the relevant protections for franchisees.
The Husqvarna case provides an important lesson for all companies that appoint dealers, distributors, licensees or similar, highlighting the importance of carefully assessing your agreements to ensure whether they may be considered a franchise agreement.
As Mick Keogh, the ACCC Deputy Chair, put it: “if it looks and smells and appears to be a franchise agreement, it’s considered to be one, irrespective of what the franchisor says.”
Are you a franchisor or franchisee?
If you are a business concerned that your agreements may be considered a franchise agreement, or if you are considering becoming a franchisee and would like to know your protections under the Code, please contact us.
Author: Blake Motbey, Paralegal