The former Australian master franchisee for the Quizno's Sub chain of quick service restaurants has given court-enforceable undertakings after the Australian Competition and Consumer Commission raised concerns that Quizno's conduct may have breached the Trade Practices Act 1974 and adversely affected its franchisees.
As a result, franchisees who lodged complaints with the ACCC are being offered an amount depending on the level of their involvement in the Quiznos franchise. This amount comprises at least a full refund of the standard franchise fee.
In 2001 the US based Quizno's Franchise Company granted Quizno's Australia Pty Ltd the right to function as the franchisor in Australia and New Zealand. Quizno's Sub retailed fast food in the form of toasted bread rolls with various fillings.
From about 2002 to 2006 Quiznos promoted and sold franchise territories in New South Wales, Victoria, Queensland and South Australia. The ACCC alleges that during this time Quiznos made various representations to franchisees and potential franchisees, including that:
- the Quizno's Sub franchise system was a 'proven' operating system, when the franchise had no track record in Australia
- the Quizno's Sub franchise system had been trialled and tested for two years in Australia, when it had not
- the American menu had been 'Australianised', when it had not
- the stores operated by Quiznos had been trading very well and operating profitably when they had not
- turnover would be at least a certain amount, when information then available to Quiznos indicated that such turnover was likely to be unachievable
- labour and food costs would be certain percentages of turnover, when information then available to Quiznos indicated that such percentages were unachievable, and
- capital costs would fall between certain amounts, when information then available to Quiznos indicated that capital costs would exceed that range.
The ACCC considered the representations were misleading and deceptive or likely to mislead or deceive franchisees and potential franchisees in breach of section 52 of the Trade Practices Act 1974 and may have caused loss or damage to these franchisees.
Quiznos, now named ACN 098 540 633 Pty Ltd, has informed the ACCC that it has ceased trading, is no longer involved in selling franchises and that its financial position is such that it would be unable to meet any claims for loss or damage by former franchisees.
The ACCC and Quiznos have agreed to resolve the matter by means of an undertaking under which payments will be procured by Quiznos from a party independent to both Quiznos and the Quizno's Sub franchise system and offered in accordance with terms of the undertaking. The undertaking has been entered into on the basis that Quiznos makes no admission or acknowledgement of liability.
"The offer is worthy of consideration by the complainants, particularly in view of the financial state of the company," ACCC Chairman, Mr Graeme Samuel, said today. "The giving of the enforceable undertaking marks the end of a very thorough ACCC investigation relating to the promotion and sale of franchise territories by Quiznos.
"The franchisor in this case was careful to ensure that all prospective franchisees sought legal, financial, and business advice before signing up. However, this case illustrates that franchisors must nevertheless ensure that the information they provide to franchisees is accurate and that they have evidence to support it."