Court orders Taxsmart to cough up $260,000 to former franchisees

The Federal Court has ordered Taxsmart Group to pay $260,400 in franchise fees to five former Taxsmart franchisees.

In a judgment handed down on Friday, the court found the accounting and taxation firm with 45 franchises across Australia engaged in misleading and deceptive conduct. 

The orders were made by consent in the proceedings brought by the Australian Competition and Consumer Commission.

The watchdog alleged Taxsmart Group, its director Scott Andrews, and its business development manager Janine Andrews made false promises in job advertisements for graduate accountant positions.

The court found Taxsmart collected sums of between $45,000 and $80,000 from a number of recently graduated accountants who paid to start a franchise business with Taxsmart.

The money was paid on the proviso that at the end of a 12-month supervision program the graduates would be qualified as registered tax agents and could consequently run their Taxsmart franchises.

A number of the employees, many of whom came from non-English speaking backgrounds, allegedly had their employment terminated within the first 12 months of working for Taxsmart, meaning their supervision period was not completed and they were not qualified to operate their business.

The court found Taxsmart had not made proper enquiries or adequately considered whether the graduate program would enable graduates, with no prior experience in tax accounting, to satisfy the legal requirements for registration as a tax agent.

It also found Taxsmart’s graduate program was not capable of enabling graduates with no previous work experience in tax accounting to satisfy the legal requirements for tax agent registration.

ACCC commissioner Sarah Court said the judgment should remind all businesses of their obligation to ensure that they have reasonable grounds for making any representations about future matters.

“A tax agent licence is lucrative to accountants as it allows them to complete tax returns for a fee without relying on a supervising agent to authorise the return,” she said in a statement. 

“These graduates paid significant franchise fees, relying on the representation made by Taxsmart that they would satisfy the requirements for registration as a tax agent, when in fact they would not meet those requirements through the graduate program.”

The court also declared that Andrews aided and abetted Taxsmart in engaging in the misleading and deceptive conduct and is jointly liable for the repayment of the franchise fees.

The court accepted undertakings from Taxsmart and Andrews that they would not, for a period of three years, make the same or similar representation or make offers of employment contingent on the payment of a fee.

The court also ordered that Taxsmart and Andrews pay a contribution to the ACCC’s costs in the amount of $10,000.

Andrews told SmartCompany the outcome of the case was “very different” to what the ACCC originally envisaged, with the two parties negotiating some middle ground in the case.

“We acknowledge that the graduate program we put together included a significant amount of training, we felt that was necessary and still maintain we think it is appropriate for graduates with no experience to participate in some pretty heavy training,” he says.

“In the end we acknowledge that by implementing a heavy training program like that it cut into the practical experience that they would obtain.”

Andrews says Taxsmart hasn’t offered jobs as part of its franchise since 2007. “So from our perspective we don’t think it impacts our business too much,” he says.

“At the end of the day it probably means we are unlikely to employ graduates going forward with no experience.”

Melissa Monks, special counsel at law firm King & Wood Mallesons says any business making a representation about future matters, which is commonly earning potential and profitability, must ensure there is a reasonable basis for doing so or they may be exposed for misleading conduct.

“It’s a significant decision because the ACCC has relied on its power to seek compensatory relief, rather than leaving it to individuals who have suffered loss or damage to pursue costly legal action themselves,” Monks says.

This is the first order of its kind under the Australian Consumer Law. 

Monks says under the legislation a court need only be satisfied that a person is likely to suffer loss or damage, so the ACCC doesn’t even have to prove actual loss or damage, making it a powerful tool for the regulator. 

“However, as we’ve seen so far, the ACCC is only likely to rely on the power in limited circumstances as it not often that there are large classes of persons suffering the same or very similar loss from the same conduct,” she says.