Did someone just say, “No franchising agreements”? – Franchising code and Australian Consumer law Case Study

One of the positive side effects of COVID-19 is the opportunity to reset our environmental future, such as local air and water quality have improved dramatically in several areas after shutdowns were implemented. The same theory applies to your business as well. COVID-19 also provides an opportunity to reset for businesses and directors. However, what we really want is that all the benefits are sustainable. Therefore, why not seize this opportunity and have a through diagnosis of the legal issues in your business. If you have a well-known brand name and you never think about whether there is a franchising issue, then you need to think about it now.

The Husqvarna Case

Husqvarna Group is a Swedish manufacturer, which offers a full range of forest and gardening tools including lawn mowers, chainsaws, robotic mowers and more for both professional and domestic use. Husqvarna Australia Pty Ltd (Husqvarna) has over 300 dealers in Australia, is a subsidiary of the Swedish manufacturer. Husqvarna told its dealers that their dealership agreements were not franchising agreements. 

In 2018, The ACCC investigated Husqvarna’s “dealership agreements” in relation to contravening provisions of the Franchising Code of Conduct (FCC) and the Competition and Consumer Act (CCA), and misleading representations for the purpose of Australian Consumer Law (ACL).

ACCC Deputy Chair Mick Keogh said:

“Husqvarna has acknowledged that this was likely to be misleading and in breach of the Australian Consumer Law.

If an agreement meets the definition of a franchise agreement it will be covered by the Code regardless of whether it’s referred to as a ‘franchise agreement’ or not.

By claiming that the dealership agreements were not franchising agreements, Husqvarna likely gave dealers the impression that they were not entitled to protections under the Franchising Code.”

The ACCC accepted a court enforceable undertaking from Husqvarna. To address the ACCC’s concerns, Husqvarna provided, among other things, Husqvarna would:

·        offer any new dealers a new agreement that complies with the FCC which would not contain unfair terms;

·        provide all existing dealers a written notification, in a form approved by the ACCC, that the FCC applies to their current dealer agreement, as well as the opportunity to transition to the new agreement;

·        not enforce any of the unfair terms in the existing agreement;

·        provide all new and existing dealers a disclosure document and any other documents required by the FCC; and

·        implement and maintain an ACL compliance program for a period of 3 years.

Franchise Agreement

If an agreement meets the definition of a franchise agreement it will be covered by the Code regardless of whether the agreement is referred to as a ‘franchise agreement’ or the business is referred to as a ‘franchise’ or not.

In the Code, a franchise agreement is where:

1.   one person (the franchisor) grants another person (the franchisee) the right to carry on a business in Australia supplying goods or services under a specific system or marketing plan substantially determined, controlled or suggested by the franchisor or its associate;

2.   the business is associated with a particular trademark, advertising or a commercial symbol owned, used, licensed or specified by the franchisor or its associate; and

3.   the franchisee is required to pay or agree to pay an amount to the franchisor or its associate before starting or continuing the business (this excludes certain payments).

Now is the perfect time to identify whether you’ve got involved in a franchise business. Contact SLF Lawyers to have a full examination of your circumstances so that you will be better protected going forward.

Article written by Henry Lin.

Leave a Reply

Your email address will not be published. Required fields are marked *