Pizza giant Domino’s has called for minimum disclosure requirements for prospective franchisees under the Franchising Code of Conduct to be strengthened, joining a growing chorus of major networks calling for reform to the scandal-plagued sector.
In a submission to the Senate Inquiry into the franchising sector published on Wednesday, Domino’s said that the code could be expanded to mandate disclosure of the historical earnings of a franchise site, where available.
“There may be a benefit in the Franchising Code providing for the mandatory provision of earnings information where it is held,” Domino’s said.
The Pizza giant also called for a requirement for prospective franchisees to obtain independent advice in its 23-page submission to the Senate, which is casting its eye over the industry after several high-profile scandals in recent years.
Domino’s itself has come under fire over allegations of wage underpayment within its network and complaints from at least one former franchisee that its recruitment practices were misleading. In a separate submission to the inquiry one former franchisee claimed that Domino’s had strong armed him into splitting his territory during a training session in Brisbane, issuing a franchise agreement when he was away from his accountant and lawyer in NSW.
Domino’s has previously denied that it has put pressure on franchisees to split their stores and said in its submission that the mandatory provision of independent legal and financial advice would enhance the code.
“In view of the benefits that a franchisee can receive by obtaining this type of independent professional advice, there is an opportunity to enhance the effectiveness of the franchising code by making it mandatory,” Domino’s said.
Focus on disclosure emerges
More than 65 submissions to the franchising inquiry have now been made public, with disclosure requirements and the provision of independent advice emerging as clear focus points for franchisees, franchisors and related industry stakeholders.
More than half a dozen former franchisees complained that a lack of adequate disclosure had led to them signing franchise agreements that they would not have signed had they possessed more information.
In its submission to the inquiry convenience network 7-Eleven also called for an expansion to disclosure requirements in the code, focusing on addressing the causes of wage underpayment in some networks.
7-Eleven has undertaken a broad-based overhaul of its business over the last three years after media reports revealed a widespread underpayment scandal within its franchise community. In a Senate submission published this week the business said the code should require prospective franchisees to be provided with information on likely wage costs and detailed wage modelling. It also said all new franchisee staff should receive clear information about workplace rights and that contact details for a whistle-blower hotline should be widely circulated.
“Buying any business entails some risk and is not a guarantee of income at a particular level. Accordingly, 7-Eleven strongly supports full disclosure of all necessary information to ensure fully-informed decision making and robust business planning by prospective franchisees,” 7-Eleven said.
However, there are other franchisors such as Retail Food Group have dismissed calls for disclosure requirements to be expanded, claiming that withstanding disclosure is already adequate. In its submission book retailer Dymocks, which has 39 individual franchisees, said that disclosure requirements were cumbersome on prospective franchisees and that a refinement of provisions under the code may be the most appropriate course of action.
“The suggestion that franchisors should make ‘full disclosure of all information necessary to make a fully informed decision’ creates an impossible compliance obligation and ignores the importance of franchisees conducting their own business due diligence,” it said.
“Disclosure in relation to financial information and the likely costs of doing business may have more impact and be more useful to franchisees if the overall volume of information required to be provided to franchisees were to be reduced.”
KFC Australia said in its submission that there would be a benefit in simplifying disclosure requirements rather than expanding them.
“If we have one criticism of the Code, it is that the prescriptive nature of the information required to be disclosed means that our Disclosure Document is lengthy (around 280 pages in total), complex and time consuming to prepare,” it said. “The length and complexity of the document means some of our franchisee partners will not always take the time to read it in its entirety, which defeats the purpose of disclosure.”