Franchisees commence Class Action against Pizza Hut

Over 80 Pizza Hut franchisees have commenced a class action against Yum! Restaurants Australia (the Franchisor) who are the parent company of Pizza Hut.  The franchisees argue that covering business costs and earning profits will become a distant memory after the Franchisor ordered pizzas to be sold at extremely low prices, in an effort to compete with Domino’s.

The franchisees argue that the Franchisor has breached their franchise agreement and engaged in “unconscionable conduct” by cutting its pizza prices.  Another issue is whether the Franchisor owed a duty of care to its franchisees when committing to the reduced pricing.  The 80-strong franchisee group who are involved in the class action are seeking damages to cover lost profits from when the discount business model was first introduced.

In initial proceedings  in June 2014 the Federal Court decided not to grant an injunction to restrain the franchisor from implementing the low pricing strategy.  This decision provides an insight into the Court’s  view as to whether a franchisor has acted in good faith or unconscionably.  The Court has initially observed that the Franchisor is acting for the financial interests of all parties and that there is presently not enough evidence to show that the Franchisor has acted unconscionably.

The legal representative for the franchisees argues that the discounted pizzas would not increase profitability for the franchise businesses involved because of the reduction in sale price and the increase in the cost of sales.  The class action has been likened to a case in the United States where hundreds of Burger King franchisees took legal issue with the franchisor in towing the line to sell a cheeseburger for $1.

Further information about Class Actions

In this case the class action, which has been launched in the Federal Court, is an opt-out.  This means that many more Pizza Hut franchisees, on a national scale, could be included in the action.   To begin a class action a franchisee must satisfy three requirements:

  1. There must be seven or more people claiming against the same defendant;
  2. Your claim must arise from related circumstances; and
  3. You need to have a substantial common issue or law or fact.

Class actions can be worthwhile in lowering the costs of litigation.  If you are a franchisee in dispute and would like to discuss your options, please contact Newhouse & Arnold Solicitors on 02 9922 1100.

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