The Australian Competition and Consumer Commission has applied for leave to start court action against a car wash franchise operator for alleged unconscionable conduct, saying it’s keeping a close eye on the claims businesses make about how much their franchisees can earn.
The consumer watchdog will allege that Geowash Pty Ltd, trading as hand car wash franchise network Geowash, made false and misleading representations, engaged in unconscionable conduct and breached the “good faith” provision in the national Franchising Code of Conduct.
According to the ACCC, Geowash is currently operating subject to a deed of company arrangement (DOCA). Documents lodged with the Australian Investments and Securities Commission indicate administrators were appointed to the business in October 2016.
The ACCC alleges that between November 2015 and May 2016, Geowash made claims on its website that prospective franchisees could generate more than $70,000 in revenue and make more than $30,000 in profit over a 28-day period when it had no reasonable grounds for this.
The company’s website also allegedly included claims that Geowash had commercial relationships with a string of other brands — including Audi, Nissan, Kia, Renault, Shell, Ikea, Holden, Hertz, Thrifty and Emirates — when it did not.
The ACCC also alleges the company directed funds for purposes that were not permitted in franchise agreements, and that some of these funds were directed towards commissions for the company’s director, Sanam Ali, and franchising manager Charles Cameron.
ACCC deputy chair Michael Schaper tells SmartCompany the court action is one of a number of recent cases relating to alleged breaches of the revised Franchising Code of Conduct introduced in 2015, and it shows the new model has the power to penalise those doing the wrong thing.
Read more: ACCC takes Pastacup to court — what you need to know about the franchising code
“I’m really pleased on one hand that we’re exercising new powers. Hopefully it’ll be received by the franchising community as a code with teeth.”
The ACCC is keeping a close eye on promises that franchise operators make to their franchisees. While on the whole the sector is above board, too many operators make misleading statements, says Schaper.
“Claims about what you’re really going to earn continue to be a big problem,” he says.
However, prosecuting unscrupulous operators is made difficult because many franchisees are reluctant to come forward with information.
“One of the problems in franchising is franchisees are often reluctant to take a stand — they’re worried if they’re still in the system,” he says.
However, Schaper says it is unusual to see allegations of franchise company directors using funds in a way other than what is permitted by franchise agreements.
In a statement on the Geowash court action, Schaper said the ACCC is “particularly concerned” about the allegations of improper payment of commissions from franchisee funds.
Director of the Franchise Advisory Centre Jason Gerhke says that while the whole franchising sector can potentially be tarred by the news of allegedly unscrupulous companies, the most important thing is that individuals conduct detailed research of businesses before joining a franchise.
“If any readers are considering a franchise themselves, they should always do extensive due diligence,” he says.
“This should always involve talking with existing franchisees and potentially that would provide early warning indicators.”
SmartCompany attempted to contact Sanam Ali, Charles Cameron and Geowash but did not receive a response prior to publication.
Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on Twitter, Facebook, LinkedIn and Instagram.
