What franchisors need to know about the consumer law penalty increase
New legislation recommending an increase in maximum financial penalties for beaches of the Australian Consumer Law (ACL) has passed Federal Parliament.
A review of the ACL was conducted by Consumer Affairs Australia and New Zealand (CAANZ) recommending penalties for a beach be raised from $1.1 million for companies to greater of $10 million, three times the value of the benefit received, or where the benefit cannot be calculated, 10 per cent of annual turnover in the preceding 12 months.
The Australian Competition and Consumer Commission (ACCC) has welcomed the changes, indicating the new legislation will lead to greater compliance.
“Companies will now face more serious financial consequences for breaching consumer law that align with competition law breaches,” Rod Sims, ACCC Chair said.
“We have strongly advocated for higher maximum penalties to enable courts to impose more substantial penalties. Penalties need to hit the bottom line so they are not simply seen as the cost of doing business. Perhaps more important, penalties need to be high enough to be noticed by boards and senior managers so that compliance with the law is a higher priority.”
In May, the ACCC announced a push to increase the maximum civil penalty provision in the franchising code from $63,000 to at least reflect penalties under the ACL.
The change in maximum penalties will see franchisors with a renewed focus on compliance as the October 31 deadline to have franchise disclosure documents completed and signed approaches.
Amendments to the ACL in 2015 extended the definition of ‘consumer contract’ to also account for small business contracts.
Many businesses in the franchising sector fulfil the elements of a small business contract, which is governed by both the Franchising Code of Conduct and ACL.
“Increased penalties will help to deter large companies from breaching consumer laws. This is a profound change that I believe will improve corporate behaviour significantly, and so improve the Australian economy and how it works for consumers,” Sims said.
The highest penalty the Federal Court has ordered for breaches of Australian Consumer Law is $10 million (in ACCC actions against Coles and Ford). The highest penalty the Federal Court has ordered for breaches of competition law is $46 million (in an ACCC action against Yazaki).