TO BE OR NOT TO BE!

Let’s Pretend we are a Franchisor!

The consequences of not seeking specialist advice and identifying whether your business model is one that clearly falls within or outside the definition of a Franchise Agreement can be costly and damaging.

The recent case of Spray Pave Australia highlights this point. The company claimed to be a franchise and be part of an international group.

The company sold spray pave businesses. Spray Pave Australia did not comply with the Code, and engaged in the following activities:

• advertising on various franchise websites representing that it was a franchise; and
• representing on its website that it had international offices.

The irony in this case is that the company was holding itself out to be a franchise, when it wasn’t.

The ACCC sought court enforceable undertakings from the company that it would not, for 3 years, make any representations unless the representations could be substantiated, that it place corrective notices on its website and it implement a Trade Practices compliance program.

A key comment by the ACCC Chairman, Mr Graeme Samuel, in this matter was that in the current economic climate where many people are looking for business opportunities, a claim that a business is a franchise is likely to have a significant impact on whether someone purchases that business. Therefore, it is important that business opportunities are not misrepresented.

This is a timely reminder to seek appropriate specialist legal advice to ensure that you are not misrepresenting your business opportunity which may damage your brand and reputation.

This is contrary to our experience where we have found that companies who are in fact caught under the Code as a franchisor, sometimes avoid the cost and expense of complying with the Trade Practices Act and the mandatory Code and misrepresent their business.
They do not hold themselves out as a franchisor, when in fact they are.

The old adage “Buyer Beware” really does apply here. Do your due diligence if you are looking at a business opportunity or system. Basic steps such as a Google search, speaking to the Industry Association, other franchisees or business operators will hopefully flesh out whether the business opportunity is genuine or misrepresented.

Most importantly seek specialist advice and get the right advice before you commit or pay any money.
 

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