Vodafone UK Hit by £120m Legal Claim from Current and Former Franchisees

Broadband and mobile operator Vodafone has this afternoon been hit by a £120m+ legal claim (CL-2024-000663), which was filed by 61 current and former UK franchisees who claim to be challenging the “financial, mental, and physical impacts of the retail giant’s “irrational” business decisions“. Something Vodafone “strongly refute“.

The affected Vodafone franchisees, many of which say they started their careers with Vodafone and have been “loyal ambassadors for the brand over the years“, claim that Vodafone – which has recently left the British Franchise Association (BFA) – has “breached its duty of good faith and the terms of the Franchise Agreement“. They allege that Vodafone did this by imposing “irrational and arbitrary business decisions” on them from July 2020.

Andrew Kerr, Rikki Lear and Donna Watton, three former franchisees and members of the claim, say Vodafone’s actions have caused them and their families “severe financial and personal distress including reaching the edge of bankruptcy, potential repossession of their homes, and serious mental health issues” – impacts they allege are felt by others across the programme.

The announcement goes on to highlight several serious allegations against the operator.

The Key Complaints (allegations)

➤ Commission payments and remuneration to the affected franchisees were “cut drastically and with little or no explanation“.

➤ Vodafone benefitted from government business rate reliefs that “were intended for the franchisees“, when they were facing financial distress during Covid

➤ Vodafone are said to have “often failed to pass on rent free periods in its underlease terms to affected franchisees and charged them full rent“, again when many of their businesses were already being squeezed.

“It started off as a dream – and it’s ended up as a nightmare that haunts me every day. I felt I became Vodafone’s piggy bank. They pushed me to the point of financial ruin, and then took away my stores leaving me in crippling debt,” said Andrew Kerr, 42 from Bangor, Northern Ireland.

Andrew claims to have become a franchisee in 2019 and that, with just 14 days’ notice, almost a third of his revenue was wiped out by Vodafone’s decision to cut his commission. Andrew had three stores and eventually lost his business in March 2023. To this day, he is still dealing with the repercussions of Vodafone’s actions. The stress caused is alleged to have led to “serious physical and mental health issues“, he says.

A number of the other franchisees say their stores were also taken away from them with “little notice and no other explanation” than that Vodafone was taking their stores in “a different direction”. All of this culminated in a number of the affected franchisees independently seeking legal advice as a last resort back in October 2022, before coming together to form a group, and now launching this claim.

Throughout pre-action correspondence, Vodafone has consistently denied the allegations, and it is anticipated that the telecoms operators will choose to defend the claim. The claim is now part of court proceedings that are likely to be contested.

A spokesperson for Vodafone told ISPreview:

“We are aware of the allegations and take them very seriously, we are sorry to any franchisee who has had a difficult experience. While we have acknowledged challenges were faced by some franchisees, we strongly refute claims that Vodafone has ‘unjustly enriched’ itself at the expense of small businesses. Our franchise model is a commercial relationship. We offer our franchise partners a large amount of cost-free support, but, as with any business, commercial success is not guaranteed.

The majority of franchise partners are profitable today and we continue to see high demand from the majority of our franchise partners to take on new stores. We maintain that where issues have been raised, we have sought to rectify these and believe we have treated our franchisees fairly.”

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.