In relation to a Franchisor seeking to control the pricing in respect of what its franchisees can charge for products and services:
Resale Price Maintenance (“RPM”) – Minimum Pricing
Generally, RPM occurs where a supplier requires a business not to sell goods below a minimum price that the supplier stipulates.
So, in a Franchisor’s case it would occur if the Franchisor stipulated that its franchisees could not charge below a minimum amount for the services they provide.
This type of conduct is prohibited under the Competition and Consumer Act 2010 (Cth) (“CCA”). For example, section 48 of the CCA states:- “A corporation or other person shall not engage in the practice of resale price maintenance.”
There is scope, however, in limited situations to apply to the Australian Competition and Consumer Commission (ACCC) for authorisation of RPM. But to be successful on such an application it would need to be on public benefit grounds.
Under section 97 of the CCA, a Franchisor can avoid the RPM prohibition by adopting a recommended price strategy in regards to the prices its franchisees charge. The key issue though, is that the price must be “recommended”.
In terms of the CCA, there is no specific section which restricts a Franchisor from adopting a maximum price strategy.
So a Franchisor is permitted to set a maximum price.
In deciding at what level to set as the maximum price, Franchisors should keep in mind:
(a) the factors which can impact on price and whether a particular franchisee (say based on location) is able to secure more profit than another franchisee in a different location;
(b) to exercise your decision in good faith and with reasonable cause;
(c) not set maximum prices arbitrarily – meaning, have a thought process and document its reasons
behind setting the maximum price;
(d) not to act capriciously, unreasonably or dishonestly in setting maximum prices.
Recommended and maximum prices maybe set out in the Franchisor’s Operations Manual.
Legal advice should be obtained as appropriate.
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