Posted by Elizabeth Gore-Jones
on 22 February 2015
People are often surprised that a director, employee or anyone involved in a breach of certain provisions of the Competition and Consumer Act 2010 Cth (the "Act") can be liable for those breaches.
It is often mistakenly believed that, as the franchisor is a company, the people working for or on behalf of the company cannot be personally liable.
If a person, amongst other things, has "aided, abetted, counseled or procured a person to contravene" or "has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person" of "has conspired with others to contravene" the relevant sections of the Act then then they can also be liable for a penalty determined by the Court.
I think you get the picture. Basically, if an individual had anything to do with the contravention they may be liable.
This of course goes further than directors and employees and can extend to any party who had a hand in the contravention. If you consider all of the parties who may act for or on behalf of franchisers you can see that this may include, business brokers, recruiters, lawyers, directors, employees, accountants and any other party who may, for example, act unconscionably or may mislead and deceive.
In our previous post "Am I acting unconscionably" we looked at the director who was liable under this section as a result of an infringement of the unconscionable conduct laws. You may recall the ACCC also brought an action under this section against an employee who was also involved in the contravention (that action was later dropped).
Let's look at some examples of situations where an individual may be liable:
1. a recruiter tells a potential franchisee that they will turnover $100,000 per year and has absolutely no basis upon which to make that representation. The franchisee only turns over $50,000;
2. a director and employee of the franchisee conspire to pressure a franchisee into paying monies they are not required to pay under threat of losing their franchised business, where the franchisor has no right to terminate the franchise agreement or take away the franchised business;
3. a director of a franchisor instructs that a franchisee is to be given only seven days to repay a loan, in circumstances where the loan has been outstanding for 12 months. The franchisor has a buyer for the franchisee's business but wants to terminate the franchise agreement and sell the business to a new franchisee at a profit to the franchisor; or
4. a director has a personality clash with a franchisee and issues breach notice after breach notice but does not issue breach notices to other franchisees for the same breaches.
The examples and scenarios are limitless, however this gives you some idea.
If more directors, employees and other participants realised they could be personally liable then they may curb their bad behaviour.
Franchisees need to be aware they do have rights where the actions of the participants breach the relevant provisions.
The Act places an expected level of behaviour on all participants in business and in the franchise relationship and provides a means for penalising those who do not meet that expectation.
The vast majority of franchisors and their agents and representatives understand and meet their obligations (and in many cases surpass them).
Disclaimer - this article is for information purposes only and is not to be considered or relied upon as legal advice. Each set of circumstances is different and you should seek your own advice.
