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Rebate disclosure advice from franchise law services provider Stewart Germann Law Office
Stewart Germann Law Office is a franchise law services provider and have the following advice about whether franchisors should disclose rebates to franchisees.
Most franchisors who either supply products or arrange for products to be supplied by third parties receive rebates from such suppliers. Those rebates are normally in the nature of cash but they could be in kind, like a backhander of products, or benefits to the franchisor. Franchisors must decide whether to disclose such rebates to their franchisees, or not.
Some franchise agreements disclose that there is a rebate, and the clause may say that the rebate will be credited to the marketing fund for use on behalf of all franchisees.
Conversely, the clause may say franchisors will keep the rebate for themselves and not share it with their franchisees, who generated the high volume of purchases from which the rebates arise.
Some franchise agreements do not mention rebates at all, so what happens to them then? Should the receipt by franchisors of rebates from suppliers be disclosed? In Stewart Germann Law Office''s opinion they should be and that disclosure should be in full. If there is non-disclosure then what is the legal position?
As the essence of franchising is the relationship between franchisors and franchisees and that relationship requires mutual trust and respect by all parties, non-disclosure of rebates will only taint the system and make franchisees suspicious. Does the Secret Commissions Act 1910 have any legal effect on the parties? It may well do, but specific legal advice would be required in that area.
In summary, good franchising practice requires disclosure of rebates by franchisors to franchisees.
This advice was offered by award winning specialist franchise law firm, Stewart Germann Law Office, the longest established franchise law services supplier in New Zealand with more than 30 years experience acting for both franchisors and franchisees.