How does consumer law affect franchisees?

By Sarah Stowe | 09 Feb 2018 View comments

Inside Franchise Business: consumer law affects franchiseesWhen you buy a franchise, you will have general business laws to adhere to, as well as franchise-specific regulations.

In this article, Mills Oakley lawyers explore the implications of the Competition and Consumer Act, and in particular, the Australian Consumer Law (ACL) for franchisees.

When you buy a franchise, you will have general business laws to adhere to, as well as franchise-specific regulations.

In this article, we explore the implications of the Competition and Consumer Act, and in particular, the Australian Consumer Law (ACL) for franchisees.

The ACL is the main law protecting consumers, and has serious consequences for your business practices.

It is important to understand your obligations and the rights of your customers to avoid any potential negative consequences for your franchise down the line.

Consumer guarantees

Businesses give guarantees under the ACL when supplying goods or services to consumers. This includes customers who acquire goods or services for $40,000 or less, or where the goods or services are of a kind ordinarily acquired for personal, household or domestic use or consumption. It excludes certain types of customers, for example, customers who acquire goods for the purpose of re-supplying them.

When selling goods to consumers, you guarantee that those goods are of an acceptable quality, meaning they are:

  • fit for their usual purpose;
  • acceptable in appearance and finish;
  • free from defects; and
  • safe and durable.

For example, if selling a refrigerator, you guarantee that it is fit for storing and cooling food, doesn’t have any broken drawers, and is safe and built to withstand regular usage.

Additionally, you guarantee that any goods will match your samples or demonstration models.

Second hand goods are also covered by these guarantees, however, factors such as the nature of the good and the price are taken into account. Exceptions apply for goods supplied by way of auction.

The guarantees are similar for services, including that the services will be:

  • performed with due care and skill;
  • fit for the purpose they are performed; and
  • performed in a reasonable time (unless the time for performance is fixed by you or the customer).

You can look at these guarantees as requirements — requirements as to the condition and quality of any goods or services you supply.

Refunds and replacements

Another significant area of the ACL for franchisees is the requirements around providing refunds and replacements to customers.

The ACL distinguishes between major and minor defects in a good or service.

For minor problems, you are obliged to remedy the problem within a reasonable time(for example, by a free repair), but you do not necessarily have to provide an immediate replacement or refund.

For major defects, customers are able to request a refund or a replacement, which you must provide.

A major defect is where any of the following applies:

  • if a reasonable customer would not have purchased the product/service in the first place if they had known about the defect;
  • the product/service is substantially unfit for purpose and cannot, easily and within a reasonable time, be remedied to make it fit for purpose;
  • the product/service is unsafe; or
  • the product/service is substantially different from the sample or demonstration, or the service requested,

A minor defect is one which does not fall into any of the above categories, but is still a fault or flaw with the product or service.

Can I get out of my ACL obligations?

We often see contracts that include words to the effect of “all guarantees and warranties are hereby excluded” or “to the fullest extent permissible at law, the seller does not guarantee or warrant…”

However, no matter the words used, there is no escaping the ACL, even if the customer agrees.

The ACL states that any attempt to ‘contract out’ of the guarantees is void.

An exception is where the goods or services are not of a kind ordinarily acquired for personal, domestic or household use or consumption. For example, certain office equipment. In that situation, a clause that limits your obligations to providing a replacement good or service, repairing or paying for a replacement or repair, may be viable.

You must ensure that you do not, either in your terms and conditions, contracts, display signage or even in conversation, tell a customer that any of the ACL guarantees do not exist, may not apply or may not have an effect.

For example, you can’t display a ‘no refunds’ sign on your premises, or tell a customer that they have pay to exercise their legal rights.

By telling customers that their rights under the ACL are limited, you may also be guilty of misleading or deceptive conduct, which may attract additional penalties.

Seek advice

This is a suggestion of key things franchisees should watch out for in consumer law but it’s important for franchisees to ensure the business and its staff are fully compliant. It is always best to seek advice on your specific circumstances.

By Warren Scott, partner, Jacqui Murphy, associate, and Scott Colvin, law graduate, Mills Oakley.