United Petroleum dispute highlights shared franchise concerns

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Source: Facebook / United Petroleum.

Recent allegations against United Petroleum by a group of former franchisees highlight some common concerns that are, unfortunately, all too often seen in the franchise business.

With the key claims Focusing on the underpayment of staff (and the subsequent termination of franchise contracts), it asks why this question seems to constantly crop up in the context of franchising.

It is a complex question and one which seeks to be addressed in the sector since the 7-Eleven scandal in 2015. A few years after this scandal, the Vulnerable Workers Protection Act was enacted to hold franchisors responsible for failure to comply with workplace laws by their franchisees in certain circumstances.

This meant that it was no longer sufficient for franchisors to view franchisee non-compliance as “their mistake”. Franchisors should take an active role in educating and training franchisees and in monitoring compliance with workplace laws.

More than that, however, franchisors need to ensure that their business model supports the correct and legal payment of wages.

In the United Petroleum dispute, ex-franchisees claim it was impossible to pay full staff rates and survive in business.

Likewise, franchisees should educate themselves and do due diligence before purchasing a franchise. This joint responsibility would go a long way in mitigating the risk of overpayment problems over time, and seems to be the intention of the Vulnerable Workers Protection Act.

One of the other claims in the United Petroleum dispute concerns the alleged forced introduction of a Pie Face offer at all gas stations. The ex-franchisees say United Petroleum did not disclose anything about Pie Face in the franchise documents, preventing them from making a “reasonably informed decision about the company.”

Naturally, such dramatic changes in the business model can be alarming for franchisees, especially when they have not been able to educate themselves on the full business model upon entry into the franchise. While improvements and upgrades to the business model can (and should) be made in franchising, it’s a very different thing when an entirely new brand is “added” to the existing business.

The recent Franchising Investigation and the latest changes to the Franchising Code of Conduct appear to address this issue. Fuller and more robust disclosure of significant potential capital expenses is required, and a discussion of those expenses before a franchisee enters into the franchise agreement. If a franchisor does not disclose these expenses, they cannot be imposed on franchisees.

But while there certainly are legal protections for franchisees, whether franchisees get the benefits of those protections is another story.

As is the case at United Petroleum, new entrants to the franchise industry are often migrants themselves vulnerable and put their savings into buying the franchise. And while the Vulnerable Workers Protection Act Aimed at protecting vulnerable employees, there is a significant gap in terms of vulnerable franchisees making informed decisions before purchasing a franchise.

Again, while the Franchising Inquiry attempted to fill this gap by “leveling the playing field”, the concept of joint liability needs to be further emphasized. Certainly, as brand owners, franchisors must be committed to ensuring that the business model is financially sound and viable for franchisees, as well as to making full and transparent disclosure.

For franchisees, it’s a matter of access. Access to education and pre-admission resources. Access to all the facts about the franchise. And access to specialized and independent professional advice. Only then can fairness in franchising be truly achieved.

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