Vodafone is facing a legal action worth more than £120 million brought by 61 of its current and former UK franchisees. This is one of the largest franchise-related claims against a major UK company.
The group of plaintiffs, made up of many long-term and loyal franchise partners who started their careers with Vodafone, allege that the telecom giant breached its duty of good faith and breached the terms of its franchise agreement beginning in July 2020.
At the heart of the claim are allegations that Vodafone imposed ‘irrational and arbitrary’ business decisions, cut franchisees’ commissions without warning or explanation, usurped government aid intended for small businesses, and failed to provide rent-free periods to pass on what has been negotiated with landlords. The plaintiffs say Vodafone’s approach is in stark contrast to the “true partnership” model it originally promoted, and is at odds with the company’s public image as a supportive franchisor.
The legal action also highlights the heavy personal and financial toll on some franchisees. Many have reported facing bankruptcy, possible home foreclosure and debilitating mental health issues after changes to their pay structures and the closure of their retail operations left them with mounting debt. One former franchisee said the ordeal ‘started as a dream – and ended as a nightmare’, while another said it had undermined their ability to support their family and maintain their personal wellbeing.
Specific allegations allege that Vodafone reduced commissions with as little as fourteen days’ notice, and imposed disproportionately high fines and penalties on partners. In one case, a franchisee was fined £21,000 for a simple mistake of £7 to customers. The group also claims that Vodafone has effectively neutralized the benefit of the Covid-19 business rates cut, aimed at helping struggling small retailers, by using the relief information provided by franchisees to reduce their commissions.
Specifically, the claim alleges that Vodafone no longer pays commission at all on mobile phone sales, despite being one of Britain’s most recognizable telecoms brands. Instead, the company allegedly only paid commission on the airtime contracts, thus increasing its own margins at the expense of the franchisees.
Although the franchisees initially attempted to resolve matters through dialogue, they say they were repeatedly faced with silence or dismissal, leading them to collectively decide to pursue a formal legal route. This lawsuit follows Vodafone’s recent withdrawal from the British Franchise Association and could pose a serious reputational challenge for the company, which provides mobile, broadband and other services to millions of British consumers.
Vodafone has so far denied the allegations in pre-action correspondence. Now that the claim is in court, a hotly contested legal battle is expected. If franchisees prevail, it would mark a milestone within the UK franchising and retail sector, raising questions about the obligations of big brands and the protections afforded to their small business partners.
Commenting on Business Matters, Vodafone said: “We are aware of the allegations and take them very seriously, and we are sorry to any franchisee who has had a difficult experience. While we have acknowledged that some franchisees have faced challenges, we strongly refute the claim that Vodafone has ‘unfairly enriched itself’ at the expense of small businesses. Our franchise model is a commercial relationship. We offer a lot of free support to our franchise partners, but as with any business, commercial success is not guaranteed. The majority of franchise partners are profitable and there is high demand among our current franchisees to move into new stores. We maintain that where issues have arisen, we have attempted to rectify them and believe we have treated our franchisees fairly.”