Vodafone legal battle: Franchisee 'suffered extortionate financial penalties', says MP

Ms Mohamed said her constituent took on a Vodafone franchise, “investing not only his life savings, but the best part of his life into it and, like the 61 other people in this claim, he ended up suffering extortionate financial penalties, which ruined his business and had profound consequences on his life”.

She said she brought together colleagues and affected franchisees in Parliament so that MPs could hear these stories and gather support to push for a fair, transparent and properly regulated franchising framework.

“These concerns cannot be minimised but must be examined properly, openly and with full transparency,’’ she added.

“What’s become clear is that these issues extend far beyond one legal case. They point to serious failures in the governance and oversight of Vodafone’s franchise programme.

“Sheffield Central is home to many small business owners and they are dangerously exposed when it comes to franchising. There is no statutory code and no independent regulator, meaning stories like this will continue to happen unless we push for legislation that will enact real protection.”

A spokesman for the claimants said their concerns relate to fundamental issues about governance, transparency and accountability. Members of the claimant group met MPs in Parliament to discuss their concerns about how the programme was operated.

Following the meeting, eight MPs signed a letter calling on Vodafone to engage further and provide clarity on the issues raised, according to a spokesman.

Vodafone has describe the matter as a complex commercial dispute between Vodafone and some former franchisees. While it fully rejects the claims against it, Vodafone said it is sorry if any franchisee had difficulty in operating their business.

The statement added: “We continue to run a successful franchise business in the UK with over 350 stores, and the majority of our partners have expanded their business with us.

“We have engaged in efforts to resolve this commercial dispute, including making a reasonable offer to settle, and remain open to further talks.”

According to a document related to the skeleton argument of the claimants, the proceedings involve separate claims brought against Vodafone by 62 companies, all of which were formerly franchisee businesses operating between one and five stores under the Vodafone brand.

The document states: “Subject to one category of minor claims (worth less than 0.5 per cent of the total alleged claims value and which Vodafone disputes quantum in any event), Vodafone disputes its liability on all of the claims and contends that the claimants’ case is misconceived in law and/or based on misunderstandings or mischaracterisations of the facts.”

A Government spokesperson said: “While we cannot comment on an ongoing legal case, we recognise the challenges the UK franchising sector faces, which is why we are investigating how we can better support them.

“We will continue to work closely with businesses, legal experts and industry bodies to ensure the UK’s high standards are maintained and encourage anyone with concerns or evidence to contact us.”

The Business and Trade Committee has called on the Government to review the current franchising landscape and consider the introduction of a statutory code of conduct, alongside stronger independent enforcement mechanisms.

A report from the committee said that gaps in the oversight of franchise agreements allow “serious employment abuses to go unaddressed” and leave franchisees exposed to unfair contractual practices.

The warnings were included in a report which set out series of reforms to end late payments, overhaul business rates, cut costs and boost revenue for small businesses.

The report added: “The absence of a dedicated regulatory framework, or clear accountability for employment standards within franchise networks is no longer sustainable.”

Fairer Franchise, a campaign group representing Vodafone franchisees, contacted the committee to argue that the absence of a dedicated regulatory regime “allows franchisors to dominate and dictate the businesses that franchisees are running”.

In its submission, Fairer Franchise said that UK franchisees are not protected by any dedicated statutory framework or franchise laws.

This means, for example, there is no legal requirement for disclosure of business risk and there is no Government regulator with oversight of franchisor behaviour, according to the submission.

“This is not the same in other countries,’’ the submission states. “For example, Australia has a mandatory industry code, the Franchising Code of Conduct, specifically designed to regulate the conduct of franchising participants toward each other and address the imbalance of power between franchisors and potential and existing franchisees.”

“The lack of regulation means that franchisees often suffer from a profound power imbalance and are dependent on the goodwill and cooperation of the franchisor. While franchisees are always told to seek legal advice before entering a franchise contract, even if this is done, franchisees frequently have little to no ability to change the terms of a franchise contract.”