Compliance message for franchisors – due diligence tip for franchisees
We always recommend prospective franchisees speak to as many current and former franchisees as they can.
As you’re aware, the Franchising Code requires franchisors to provide contact details of certain former franchisees in their disclosure document. If you’re a prospective franchisee, this can help you to obtain information about:
- the viability of the franchise
- practical issues in running the business
- assistance provided by the franchisor
- the level of movement in and out of the franchise system, and the reason for the movements.
What kind of contact details should franchisors provide?
Given that the purpose of providing contact details is to assist prospective franchisees to do their due diligence, we think it’s reasonable for franchisors to provide an email address and/or phone number for former franchisees.
If your franchisor says they can’t provide details of former franchisees – ask why not.
Whilst the Franchising Code doesn’t require franchisors to maintain up-to-date contact information, in our view it isn’t sufficient to only provide the former business address and business phone number used by previous franchisees. After all, the former franchisee is unlikely to be contactable this way if they’re not operating the franchise anymore.
Note: A former franchisee may request (in writing) that the franchisor not disclose their details to a prospective franchisee – however, franchisors must not influence a former franchisee to make, or not make, such a request.
Visit the ACCC’s website at www.accc.gov.au for a range of educational resources on franchisors’ responsibilities under the Franchising Code.
The above comments do not constitute legal advice. The ACCC always recommends that businesses seek independent legal advice.
Small Business team
Australian Competition and Consumer Commission (ACCC)