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Australian Allphones Cheats Franchisees

The Australian Franchisor, Allphones, has been found by a Federal Court in Australia to have engaged in systemic cheating and dishonesty:

"Embattled mobile phone retailer Allphones, which is under investigation by the competition regulator, has hit back at findings in the Federal Court that it engaged in "calculated dishonesty" and "continuing deceit" against its retailers. ...

In a written judgment, Justice Steven Rares said Mr Donnellan knew that the true commission amounts were being concealed from franchisees.

"(Mr Donnellan) would also lack any understanding of contract law if he seriously thought that Allphones could avoid paying commission to franchisees ... by relying on (a clause in the contract) as he asserted," Justice Rares wrote.

But Mr Donnellan said the action was necessary. "Had Allphones not acted, we may have jeopardised our whole franchise system with the cancellation of carrier agreements," Mr Donnellan wrote."

The full text of the decision is not available yet, but I hazard a guess that the means by which Allphones was able to retain the franchisees commissions was by way of having the franchisee's customers remit payment to the franchisor first, and commissions would then be remitted to the franchisee.

This is a very dangerous practice, and prospective franchisees should rightly be worried about the consequences of having to "wait" for their money from the franchisor.

As a result of this decision, Allphones now faces a possible class action from all of their franchisees, and Mr. Donnellan is being urged to step down as member of Communications Minister Stephen Conroy's expert broadband panel.

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Full post as published by Misleading Advertising Law on June 11, 2008 (boomark / email).