They accuse the operator of having “unjustly enriched” itself at their expense and acting in “bad faith”. The claim is the week after Vodafone won approval to merge with Three UK
The Guardian reports that a group of 61 current and former franchisees of Vodafone high street stores have made a claim for more than £120 million against the operator. They accuse Vodafone of acting “in bad faith” and having “unjustly enriched” itself by unilaterally cutting their commission and inflicting “swingeing fines” totalling thousands of pounds for apparently minor administrative errors. The claimants allege the fines were levied to boost the operator’s income.
The cuts to commissions were made as the UK emerged from COVID lockdown in summer 2020.
Some claimants allege they were then encouraged to take out loans and to apply for government grants to stay in business. According to The Guardian, many said they feared losing their livelihoods, homes or life savings, with some running up personal debts of more than 100,000.
The Guardian says that some of the claimants it interviewed claim they were told by regional managers that they were the only ones experiencing difficulties. This is an echo of the treatment meted out to post masters and mistresses by the Post Office, the subject of a huge national scandal. Thousands were punished for fraud when in fact the PO’s Fujitsu IT system was at fault, and known to be faulty by executives at the PO.
According to a press release sent out by Byfield Reputation Counsel, the claim alleges that:
- The franchisees were sold the programme with the promise of uncapped earning potential, but in reality, were often given commission structures that meant their stores were loss making.
- A senior Vodafone figure admitted that a commission cut imposed by the company in July 2020 – with less than 14 days’ notice – had in effect ‘shanked’ a number of franchisees. When asked for documentary evidence to show the rationale for the July 2020 commission cut, Vodafone refused or failed to explain the process it underwent at the time or provide the documents requested.
- During the Covid-19 pandemic, the UK government introduced financial support for small businesses, including Business Rates Relief, that was introduced to help small bricks-and-mortar shops carry on trading in financially precarious times. From around 2022, Vodafone gathered information on the relief the franchisees were receiving and then factored this into its cost modelling when calculating the commission paid to the franchisee. This had the effect of depressing or eliminating the benefit those franchisees should have received from government assistance for Vodafone’s own direct benefit.
- Vodafone excessively fined and imposed clawbacks on its franchisees. Senior staff were incentivised to fine franchisees, and the franchisees infer that the purpose for such incentives was not purely to ensure franchisee compliance with the relevant procedures, but also with the aim of allowing Vodafone to increase its revenue. A singular fine could be as high as 30% of a store’s commission and even go as far as franchisees having their stores taken away. The severity of the fines, often in the thousands, were often totally disproportionate to the perceived cost of the failure to Vodafone. For example, one franchisee in the claim was fined £21,000 for a £7 customer mischarge.
- On numerous occasions, Vodafone took decisions in bad faith that unfairly penalised the franchisees while benefiting the company. For example, Vodafone justified a commission cut through the closure of Carphone Warehouse, citing the extra footfall franchisees should have benefitted from which never materialised. Additionally, Vodafone often failed to pass on rent free periods in its underlease terms to affected franchisees when some of their businesses were already experiencing financial difficulties.
- Vodafone stopped paying commission to its franchisees for selling mobile phones despite being one of the UK’s major mobile network operators and being widely known in the UK as place to purchase phones. In 2021, Vodafone decided to only pay commission on the value of the airtime contract increasing Vodafone’s margin from the sale of the physical device
Vodafone launched its franchise programme in 2018.
Mobile Europe has asked Vodafone for comment and we’ll update this article accordingly.
In response to questions from The Guardian, Vodafone said it was “prepared to go to mediation” with the claimants. It added:
“In 2022, a full assurance review was conducted into our franchise estate, taking over 400 hours. The review did find questions to be answered in relation to the franchise programme, its process and communication. It concluded with clear actions to make improvements in the areas identified. For example: we provided additional resource to support franchisees and made payments to franchisees where it was found Vodafone could have acted differently.”
It was also quoted in The Guardian as saying the “majority of franchise partners are profitable today” and “the majority of the partners who are not considering legal action have applied to grow their store portfolios”.
Not a good look either
Last week Vodafone and Three UK were finally given approval for their merger by the Competition and Markets Authority. To celebrate, Vodafone Group posted a slogan on X that read, “Great for Customers. Great for the Country. Great for Competition.” However, the backdrop photo was of the small German town of Gechingen. The post was also shared by some senior execs on LinkedIn.
The mistake had apparently been flagged by the Sunday Times more than two months ago on the vodafoneandthree.uk website. Ouch.
Nearly as much fun as the Netflix series Senna picturing the Snetterton race track in Norfolk, England, with snow capped mountains behind it. While Norfolk, which is where I live, is not as flat as common perception suggests, mountainous it certainly is not.