Stewart Germann Law Office provides legal advice on the disclosure or non-disclosure of rebates

Most franchisors who either supply products or arrange for products to be supplied by third parties receive rebates from such suppliers. Those rebates are normally in the nature of cash but they could be in kind, like a backhander of products or benefits to the franchisor. Franchisors must decide whether to disclose such rebates to their franchisees or not to disclose.

Some franchise agreements disclose that there is a rebate and the clause may say that the rebate will be credited to the marketing fund for use on behalf of all franchisees. Conversely, the clause may say franchisors will keep the rebate for themselves and not share it with their franchisees that generated the high volume of purchases from which the rebates arise.

Some franchise agreements do not mention rebates at all so what happens to them? Should the receipt by franchisors of rebates from suppliers be disclosed? In my opinion they should be and there should be full disclosure. If there is non-disclosure then what is the legal position?

Because the essence of franchising is the relationship between franchisors and franchisees and that relationship requires mutual trust and respect by all parties, non-disclosure of rebates will only taint the system and make franchisees suspicious. Does the Secret Commissions Act 1910 have any legal effect on the parties? It may well do but specific legal advice would be required in that area.

In summary, good franchising practice requires disclosure of rebates by franchisors to franchisees. 

Stewart Germann Law Office  provides franchise legal advice and franchise legal services.