Misleading and deceptive conduct is a serious concern for franchisors in Australia. The Australian Consumer Law (ACL) contains provisions that can hold franchisors liable if they engage in misleading or deceptive practices during franchise recruitment. Not only can this result in penalties, but also declarations that franchise agreements are void and significant damages awards. Misleading and deceptive conduct is not a small issue. Brands like Michelle’s Patisserie, 7-Eleven, and UFG have all faced legal consequences for misleading franchisees in the pre-contract discussion phase. Even an offhand comment made by someone on the franchisor’s team can pose a significant risk.
Here’s what you need to know to avoid falling into the same trap and what steps you can take to protect your business.
Why It Matters
When recruiting and contracting with franchisees, every word and every document provided counts. The ACL has strict provisions that protect consumers and franchisees from misleading and deceptive conduct. A claim of this nature can arise from promises, information, or even implications made by your team during the recruitment process. Once a claim is made, the consequences can be severe, both financially and reputationally.
Franchisees rely heavily on the information provided by franchisors when deciding to invest. If that information turns out to be misleading, whether intentionally or not, it can lead to costly legal battles. This is where having a knowledgeable franchise lawyer can be invaluable.
The Big Names That Got It Wrong
Several well-known brands have been found liable for misleading and deceptive conduct under the ACL. Michelle’s Patisserie, 7-Eleven, and UFG are just a few examples. These cases highlight the importance of being cautious during the recruitment phase. Even large, successful brands are not immune from these claims.
The consequences of such cases can include significant financial penalties, damage to the brand’s reputation, voided contracts, and strained relationships with franchisees. That’s why it’s essential to take proactive steps to avoid such claims.
Top 6 Tips to Avoid Misleading and Deceptive Conduct
- Train Your Staff Every person involved in franchise recruitment needs to understand the ACL’s provisions on misleading and deceptive conduct. Training is essential. Your staff should know what constitutes misleading information and when the risk of a claim could arise. This is where consulting a franchise lawyer to help with training materials can be beneficial.
- Provide Sales Scripts One way to reduce risk is by providing your team with sales scripts. These scripts should be carefully crafted to avoid any statements that could be interpreted as misleading. Ensure that your staff is instructed not to deviate from these scripts. Sticking to a script helps maintain consistency in messaging and reduces the chance of making offhand comments that could lead to a claim.
- Systematise, Systematise, Systematise Every franchisor should have comprehensive systems, processes and checklists for their team to follow in franchise promotion, recruitment and onboarding. Having a carefully designed process to follow, and tools that allow team members to adhere to that process, reduce the risk of misleading information being provided.
- Be Cautious with Financial Data Financial data can be particularly risky. If you’re providing financial forecasts or similar information, always accompany it with appropriate disclaimers. An experienced franchise lawyer should draft these disclaimers. This step helps ensure that potential franchisees understand the limitations of the financial information provided and reduces the risk of them relying on it in a way that could lead to a claim.
- Audit Your Recruitment Activities Regular audits of your recruitment and procurement team’s activities are crucial. An audit helps identify any potential issues before they escalate. It’s a proactive way to ensure that all communications with potential franchisees are compliant with the ACL.
- Use a Deed of Prior Representations Finally, consider having new franchisees sign a deed of prior representations. This document should outline all the key representations made to the franchisee relied upon in signing the franchise agreement. A franchise lawyer can assist in drafting this document to ensure it’s effective and enforceable. Our article here further details the purpose of these documents.
Conclusion
Misleading and deceptive conduct claims can be devastating for franchisors. The ACL is clear on what constitutes misleading conduct, and the courts have shown that they are willing to hold franchisors accountable. By taking proactive steps, such as training your staff, providing sales scripts, being cautious with financial data, auditing your recruitment activities, and using a deed of prior representations, you can significantly reduce the risk of such claims.
Remember, when it comes to franchise recruitment, it’s better to be safe than sorry. Consulting with a franchise lawyer at every stage of the process is a smart move. They can provide guidance, draft necessary documents, and help you navigate the complexities of the ACL. By doing so, you’ll be protecting your business and ensuring a smoother, more secure franchise recruitment process