Domino’s Fined for Alleged First Breach of Franchising Code of Conduct

Domino’s Pizza Enterprises Ltd (Domino’s) is the first company to pay penalties for alleged non-compliance with the Franchising Code of Conduct (the Code).

Following the issue of two infringement notices by the ACCC, Domino’s has paid penalties totalling $18,000. The ACCC issued the infringement notices because it believed that Domino’s had failed to comply with the requirement in the Code to provide franchisees with both an annual marketing fund financial statement and an auditor’s report within the time limits prescribed under the Code.

Background to the Code

On 1 January 2015, the old Franchising Code was repealed and replaced with a new Franchising Code of Conduct [contained in Sch 1 to the Competition and Consumer (Industry Codes-Franchising) Regulation 2014]. The new Code applies to conduct on or after 1 January 2015.

The new Code:

• introduces an obligation under the Code for parties to act in good faith in their dealings with one another;
• introduces financial penalties and infringement notices for serious breaches of the Code;
• requires franchisors to provide prospective franchisees with a short information sheet outlining the risks and rewards of franchising;
• requires franchisors to provide greater transparency in the use of and accounting for money used for marketing and advertising and to set up a separate marketing fund for marketing and advertising fees;
• requires additional disclosure about the ability of the franchisor and a franchisee to sell online; and
• prohibits franchisors from imposing significant capital expenditure except in limited circumstances.

The ACCC can also issue infringement notices in respect of alleged breaches of these provisions. The current amount for each infringement notice for an alleged breach of the Code is fixed at $9,000 for a body corporate.

Compliance required by franchisees

If franchisees are required to contribute to a marketing fund, the Code requires a franchisor to prepare an annual financial statement to franchisees, disclosing the fund’s receipts and expenses, and to give a copy of the financial statement to franchisees by no later than four months after the end of the financial year.

The Code also requires the fund to be audited (unless 75 per cent of franchisees agree the franchisor does not have to comply with this requirement) and for the auditor’s report to be provided to franchisees within 30 days of the report being prepared.

Domino’s confirmed to the ACCC that it had provided the 2015-16 marketing fund financial statement and auditor’s report to its franchisees in late February 2017, which for both documents was outside the timeframes prescribed by the Code.

Reaction from the ACCC

Commenting on the current action in a recent ACCC Media Release, ACCC Deputy Chair Dr Michael Schaper said:

Apology from Domino’s

A Domino’s spokesperson confirmed that it had not provided its audit report on time, saying it was “an oversight”:

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Franchising Code of Conduct – accc.gov.au

Domino’s pays thousands for alleged Franchising Code breach – ausfoodnews.com.au

Domino’s pays penalty for alleged Franchising Code breach – ACCC Release MR 62/17