Outdoor power tools company Husqvarna Australia has admitted it likely misled its franchisees when it told them that the Franchising Code of Conduct did not apply to their dealership agreements.
The company, which is a subsidiary of the Swedish Husqvarna Group, has entered into an enforceable undertaking with the Australian Competition and Consumer Commission (ACCC), after the watchdog took action over concerns relating to its agreements with 343 dealers in Australia.
As a result, the company has rewritten its dealership agreements.
The ACCC was concerned Husqvarna was in breach of Australian Consumer Law because it indicated to dealers their “dealership agreements” were not franchising agreements.
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ACCC deputy chair Mick Keogh said in a statement the company has acknowledged this “was likely to be misleading and in breach of the Australian Consumer Law”.
“By claiming that the dealership agreements were not franchising agreements. Husqvarna likely gave the impression that they were not entitled to protections under the Franchising Code,” Keogh said.
The ACCC said Husqvarna has also acknowledged that it likely terminated one or more of its dealers in breach of the Franchising Code, which would consequently be a breach of the Competition and Consumer Act.
The regulator was also concerned about the presence of unfair contract terms in the Husqvarna dealership agreements. The company acknowledged these agreements were likely standard form documents that did contain unfair provisions, and such provisions would be void and unenforceable.
The ACCC said Husqvarna Australia cooperated with this investigation and, along with rewriting its dealership agreements, the company has agreed not to enforce the terms in its existing agreements that the ACCC was concerned about.
It’s rare but it does happen
Speaking to SmartCompany this morning, Keogh said the issue of franchise businesses using different, or inaccurate, language to describe their franchising agreements is not something the ACCC sees a lot of, or which it has taken a lot of action on.
“But we’re aware it occurs,” he says.
Professor Lorelle Frazer is a director of not-for-profit franchise education organisation FranchiseED. She agrees with Keogh that this issue is a relatively uncommon one.
FranchiseED was previously known as the Asia-Pacific Centre for Franchising Excellence at Griffith University, and in the past, it conducted surveys of franchise businesses around the country. Frazer says during those surveys, they would sometimes come across franchised businesses that would insist they were using licensing arrangements instead.
These businesses would genuinely believe they didn’t fall into the franchising category, but Frazer believes most operators in the sector are now very well-informed of their status, particularly franchisors who seek extensive legal advice before establishing their networks.
She also believes the level of awareness in the sector about the Franchising Code is high, although she says it’s likely some members would not be aware of all the ins and outs of the Code.
The key message from the Husqvarna case, says Keogh, is regardless of what an agreement is called, if it meets the definition of a franchise agreement, it will be covered by the Franchising Code.
“If it looks like and smells like a franchising agreement, it probably is, and it therefore comes under the Code,” he says.
To be considered a franchise arrangement, an agreement must meet three straightforward tests, says Keogh. These relate to: whether the franchisor has considerable control over business operations; if there is a common brand name and common business processes; and if the business operator needs to pay a substantial amount of money to have the right to use that brand and processes.
If those three tests are met, says Keogh, the arrangement is quite clearly a franchising one, and businesses therefore have certain obligations relating to how they bring new operators into the business, how they remove operators from the business, and how they deduct marketing fees, for example.
Keogh says the franchising space in general is a key area of priority for the ACCC, as it has been “identified as one with a number of problems”.
While some issues in the franchising space are not the direct responsibility of the ACCC, such as the underpayment of staff wages, “when it comes to franchisors breaking or breaching the Franchising Code, then we have the capacity to prosecute, to impose penalties and to see those issues corrected”, he said.
“The whole area of franchising has been identified as an area of focus and we’re progressing through a number of matters, which will be addressed,” he says.
SmartCompany has contacted Husqvarna Australia for comment.