Franchisees of the health club chain Viva Leisure have sent a legal letter to their franchisor, warning the ASX-listed company that they will take further legal action if their concerns are not addressed within one month.
A group of 53 franchisees belonging to 64 outlets in Viva Leisure’s network of Plus Fitness gyms sent a legal letter and draft statement of claim to the company in late April, detailing their dissatisfaction over a change to the franchise agreement, The Australian Financial Review Reports.
The letter from the franchisees’ law firm reportedly warned Viva Leisure that they would commence proceedings on behalf of the Plus Fitness franchisees, if their concerns were not addressed within a month. The letter also included a draft statement of claim for a class action in the Federal Court in NSW on behalf of two applicants.
The group of franchisees are disputing a change to their agreement that allegedly allows Viva Leisure to open new gyms close to existing Plus Fitness franchisees.
The change, known as a territorial exclusivity provision, determines the level of protection that franchisees have when their franchisor opens new stores that are likely to compete with them.
The franchisees claim that under the changed agreement any business associated with Viva Leisure could open in close proximity to them.
Last year, Viva Leisure acquired Plus Fitness from Australian Fitness Management, which is a network of 200 franchised gym outlets.
The ASX-listed company also owns other gym chains including Club Lime, Fit N First, Pinnacle Health Clubs, GroundUp and Psycle Life, which operate more than 100 gyms across the country.
The dispute between the gym franchisees and Viva Leisure comes weeks after the Australian Competition and Consumer Commission (ACCC) updated its franchising recourses for all prospective franchisees.
Speaking to SmartCompany, ACCC deputy chair Mick Keogh noted franchisees often rush into entering franchise agreements without understanding all the constraints that can apply to their businesses.
“We exercise continual calls to prospective franchisees to really do their homework,” he said.
Earlier this month, a nation-wide courier company Megasave Couriers Australia was fined $1.9 million in penalties by the Federal Court.
In proceedings brought by the ACCC, the Federal Court found Megasave Couriers had breached consumer law by making false or misleading representations to incoming franchisees.
Issues in the $180 billion franchise sector have not escaped scrutiny in recent years, with a parliamentary inquiry into the Franchising Code of Conduct in 2019 finding that the system needed significant reform.
Despite the inquiry recommending 71 changes, little has since been done to improve the sector.
The ACCC has recommended the government consider legislating a licensing regime for franchisors instead of the current code-based model.
SmartCompany has contacted Viva Leisure for comment.