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Franchising Law Latest: Mercedes Benz Class Action
Since amendments made to the Franchising Code of Conduct in 2015, the introduction of the obligation to act in good faith has been a hot topic in the franchising sector.
The Class Action
In one of the larger cases on good faith in recent years, a $650million class action has commenced in the Federal Court by 38 out of 55 Mercedes Benz auto dealers against their franchisor.
According to media reports, the franchisees allege that their manufacturer failed to act in good faith by changing its business model to move franchisees to a sales commission arrangement, eliminating dealer pricing flexibility and other revenue opportunities. There are also allegations of unconscionable conduct in breach of the Australian Consumer Law.
The franchisees are seeking compensation, alleging that the profitability and capital value of their businesses has been adversely impacted by the change.
According to Mercedes Benz, the new model improves customer experience with the brand and provides greater access to data for after sales service. It is also being rolled out worldwide by the brand.
What is good faith?
Franchisors and franchisees must act in good faith in all their dealings with each other. There isn’t a definition of “good faith”, so it’s determined on a case-by-case basis. It includes acting honestly in dealings with each other, not acting arbitrarily, and cooperating to achieve the purpose of the Franchise Agreement. Essentially, franchisors and franchisees must act reasonably and must not engage in bullying behaviour.
Importantly, good faith doesn’t restrict either the franchisee or franchisor from acting in their own genuine commercial interests.
Takeaways
The team at Salerno Law are following this case carefully. Its outcome will be significant for Australian franchising law. We will be posting further updates on this case once the court delivers their judgment.
At Salerno Law, we are experienced in acting for both franchisors and franchisees in all aspects of franchising law. If you have any queries, please get in contact with our team.
Luke has specialised in franchising law since his admission into practice and has acted for a diverse range of franchisors and franchisees of a variety of franchise systems. He is an active member of the Queensland Law Society Franchising Law Committee where he keeps on the forefront of the latest developments in laws affecting franchising, and contributes towards submissions to government on topical issues facing the franchising industry.
DISCLAIMER: This article is only meant to give you general information and should not be relied on as legal advice. Speak to one of our lawyers for more information.
Our Services
With a franchise sector that is arguably the most heavily regulated in the world, you need a specialist lawyer who knows how to navigate Australian franchising laws.
Our team have advised franchisors from the initial set-up stage through to established systems, as well as acting for franchisees and master franchisees of a variety of franchise systems.
After taking the time to understand your business, we aim to be a valuable member of your team by developing close and long-term relationships. Whether you are a franchisor or a franchisee, we will work with you to find the best commercial outcome to maintain and maximise your franchisor/franchisee relationship.
Our team are at the forefront of the latest developments in laws affecting franchising, allowing us to deliver up-to-date legal results in an industry where non-compliance carries heavy penalties.
Contact one of our offices today to discuss everything franchising.
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