The Federal Court has found Australia-wide courier delivery franchisor Megasave Couriers misled franchisees with false guarantees of weekly payments and annual income.
In proceedings brought by the Australian Competition and Consumer Commission (ACCC), the Federal Court declared Megasave Couriers Australia breached consumer law by making false or misleading representations to incoming franchisees.
Megasave admitted, from September 2019 to July 2020, it promised potential franchisees guaranteed minimum weekly payments of about $2,000 and an annual income of $91,000.
However, the company was not paying its existing franchisees the promoted weekly payments, and it did not have the revenue to pay franchisees in line with its claims.
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Megasave admitted there was no reasonable basis for making the representations.
Warning for franchisees
Marianne Marchesi, principal of Legalite and specialist in franchising law, says the ruling shows there is a dire need for franchisees to get financial advice before entering into franchise agreements.
“I don’t typically see a lot of franchisees getting their own independent check of the financials, because they’re already so invested in the opportunity,” Marchesi tells SmartCompany.
Anyone considering buying a franchise can also check a group’s claims by contacting existing franchisees within the system, Marchesi says.
“They can at least give a good idea of whether targets are achievable and if they have had any issues with misrepresentation by the franchisor,” she says.
The ACCC initiated proceedings against Megasave Couriers and its sole director Gary Bourne in July last year, after receiving numerous complaints from franchisees.
Acknowledging the court’s decision, ACCC deputy chair Mick Keogh said the commission received complaints from Megasave franchisees who had relied on the company’s false claims when deciding to pay thousands of dollars for a franchise.
“Many of the affected franchisees experienced significant financial hardship and emotional distress due to Megasave’s failure to make the guaranteed payments that it promised,” Keogh said.
Keogh said there are “significant consequences” for company executives and officers who breach Australian consumer law.
Australian Small business and Family Enterprise Ombudsman Kate Carnell supports the ACCC’s decision to take action against Megasave, and says the outcome will be welcomed by the affected franchisees who suffered due to Megasave’s failure to fulfil its promises.
Carnell’s office assisted more than 30 franchisees in late 2019, who spent up to $27,500 to buy into the Megasave franchise.
The Small Business Ombudsman provided dispute resolution assistance to the franchisees under the Franchise Code of Conduct, including facilitating a group mediation.
“Aspects of the matter were referred by my office to the ACCC for its consideration and we assisted with the ACCC’s investigation,” Carnell said in a statement.
As a result of the Federal Court’s judgement, Megasave Couriers director Garry Bourne has been disqualified from managing corporations for five years. A hearing to determine the final penalties and compensation for franchisees will be held next month.
The Megasave website is currently unavailable and its main phone number was not in service when SmartCompany tried to contact the company.
Reforms still on the table
The Megasave ruling comes after the Senate last week passed a private member’s bill to amend the Franchising Code.
If it clears the lower house, the Fairness in Franchising Bill will legislate some of the recommendations that came out of the scathing franchising inquiry report of 2018.
These include giving the Small Business Ombudsman the power to refer disputes between franchisees and franchisors to arbitration when mediation fails.
The bill would also increase fines for exploitative franchisors from $133,000 to $10 million.
Lawyer, Marianne Marchesi, who was consulted by the federal government during the franchising inquiry, says a lot of the report’s other recommendations are still under review by the government.
“Hopefully the sector will improve even if we don’t get all of the recommendations from the initial report actually legislated,” she says.