Three franchisees of the Cheap As Chips group have been awarded $82,000 as compensation for unconscionable conduct.
The Federal Court of Australia has granted declarations by consent against Cheap As Chips Franchising Pty Ltd and Mr Peter Hudousek, its director, that it engaged in unconscionable conduct in its dealings with three of its franchisees. It also ordered by consent that Cheap As Chips Franchising Pty Ltd and Mr Hudousek pay $82,000 in compensation.
"Franchisors should not exploit the power they have over franchisees. The ACCC will vigorously pursue franchisors which refuse to negotiate with franchisees or unreasonably terminate franchise agreements", ACCC Chairman, Professor Allan Fels, said today.
The Court declared that Cheap As Chips Franchising Pty Ltd and Mr Peter Hudousek engaged in unconscionable conduct including the following, in contravention of the Trade Practices Act 1974, by:
- terminating a franchise over a dispute about the payment of $803.75
- threatening to terminate franchisees rather than negotiating disputes about issues such as monies owed and attending seminars unrelated to carpet cleaning; refusing to allocate cleaning jobs to (“suspending”) franchisees rather than negotiating disputes about issues such as the distribution of promotional leaflets and the quantities of chemicals and equipment to be carried in franchisees’ vans
- threatening to suspend franchisees about issues such as associating with other franchisees
- requiring franchisees to attend seminars unrelated to carpet cleaning
- refusing to negotiate matters in dispute between franchisees and Cheap as Chips Franchising Pty Ltd, in contravention of the code
- and unreasonably refusing franchisees access to Cheap As Chips Franchising Pty Ltd’s records in order to verify that all payments to which these franchisees were entitled had been paid to them.
The Court also declared that Cheap As Chips Franchising Pty Ltd contravened the Franchising Code of Conduct by:
- failing to negotiate with franchisees in accordance with the procedures set out in the code
- and terminating a franchise without following the procedures outlined in the code.
In addition, the Court declared that Cheap as Chips Franchising Pty Ltd attempted to contravene the code by attempting to induce a franchisee not to associate with other franchisees for lawful purposes.
The Court also ordered by consent that Cheap As Chips Franchising Pty Ltd and Mr Hudousek be restrained from engaging in similar conduct for three years, provide franchisees with reasonable access to records, pay $82,000 in compensation, pay $9,000 in interest and pay $86,000 of the ACCC’s legal costs. Cheap As Chips Franchising Pty Ltd also offered the ACCC a court enforceable undertaking to implement a trade practices compliance program.
The ACCC acknowledges Cheap as Chips Franchising Pty Ltd’s cooperation in resolving this matter. His Honour, Justice Weinberg also commended all parties on the approach taken to resolve the matter. It is understood that Cheap as Chips Franchising Pty Ltd management has already made important changes to its operations to ensure its adherence to the Franchising Code of Conduct.
In making the orders, His Honour said: “I’m satisfied that it’s appropriate to grant the declaratory relief sought and to make the injunctive orders set out in the order to provide a powerful incentive to the first respondent to ensure that in the future this conduct is not repeated”.
The Cheap as Chips franchise system continues to operate with approximately 11 franchisees. The conduct at issue in this case was that of the Cheap as Chips Franchising Pty Ltd entity and in no way reflects the conduct or business practices of individual franchisees within the Cheap as Chips franchise system.
"This is another win for small businesses and franchisees and another step in creating law in this particularly difficult area. In other recent cases the courts have held that unreasonable, unfair, bullying and thuggish behaviour by a franchisor can contravene the unconscionable conduct prohibitions in the Act. In this decision, the Court has again recognised the special nature of franchising relationships. A franchisor should negotiate disputes with a franchisee, rather than force terms upon the franchisee by withholding work or terminating the franchise", Professor Fels said.
“The prohibitions on unconscionable conduct in Part IVA of the Act will continue to be one of the ACCC’s enforcement priorities, especially in the franchising sector. All businesses, in a position of market power, especially big businesses, must be careful not to unlawfully abuse that power in their dealings with small business", he said.