Domino’s Pizza has been hit with a landmark fine for failing to comply with the rules governing franchise chains.
The Australian Competition and Consumer Commission said the $18,000 penalty imposed on Domino’s was the first time action had been taken for a breach of the Franchising Code of Conduct.
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The penalty for breaches is fixed at $9000 and Domino’s was issued with two infringement notices.
Fairfax Media revealed in February, Domino’s had failed to release information to franchisees on how money levied from stores for marketing was spent which is a requirement under the code.
Domino’s chief executive Don Meij previously described the issue as a “screw up” and on Monday the company said it was an “honest mistake”.
Store owners pay between 4-6 per cent of sales as a levy to fund advertising and marketing campaigns. In 2016 Domino’s collected more than $40 million from its Australian franchisees.
“These are the first penalties for non-compliance with the Franchising Code,” ACCC deputy chair Michael Schaper said in a statement on Monday.
“Marketing fund contributions are often a significant expense and franchisors need to provide timely and accurate disclosure of the fund’s activities.
Domino’s Pizza chief executive Don Meij has admitted the company “screwed up”. Photo: Jessica Hromas
“Ensuring small businesses receive the protection of industry codes is an enforcement priority for the ACCC.”
The code requires the fund to be audited and for the auditor’s report to be provided to franchisees within 30 days of the report being prepared.
The ACCC statement said Domino’s had confirmed to the ACCC that it had not provided that the 2015-16 marketing fund financial statement and auditor’s report to its franchisees until late February 2017.
Domino’s has previously told Fairfax Media that it had not sent out the statements since December 2014.
A Domino’s spokesperson said:
Domino’s AdFund was independently audited in 2016, which confirmed all expenditure was appropriate and meeting the requirements of the Franchising Code of Conduct.
However we accept we did not provide a copy of this audit report on time to our franchisees, or the required financial statements in previous years – this was an oversight.
Domino’s apologises to our franchisees for this honest mistake, and will ensure an annual audit report and financial statement are distributed to franchisees as required by the Code each year going forward.
A Domino’s spokesperson said in a statement that the 2016 audit confirmed “all expenditure was appropriate” and met the requirements of the franchising code.
“However we accept we did not provide a copy of this audit report on time to our franchisees, or the required financial statements in previous years – this was an oversight,” the statement said
“Domino’s apologises to our franchisees for this honest mistake, and will ensure an annual audit report and financial statement are distributed to franchisees as required by the code each year going forward. “
The company has been under intense scrutiny over claims that underpayment of staff was rampant and the the business model potentially placed strain on franchisees.
Domino’s insists that there is no link between underpayment and franchisee profitability and that it has “zero tolerance” for underpayment.