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Ministers are closely watching a court case in which Vodafone is alleged to have “unjustly enriched” itself at the expense of franchise operators, and have raised the prospect of a regulatory crackdown on the sector.
The small business minister, Gareth Thomas, has said he will “track very carefully” a £120m legal claim brought against Vodafone last year by a group of 62 of about 150 franchise operators.
They allege that drastic cuts to commission rates on selling Vodafone products in the group’s high street stores caused many of them to run up huge personal debts. They say they fear for their livelihoods or homes, and some have reported suicidal thoughts.
Their court filing claims the company “indiscriminately … operated to enrich Vodafone at the expense of its franchisees”.
Thomas told MPs on Wednesday: “There are without question some very serious allegations being levelled at Vodafone in this case.
“Until now there has not been sustained concern about the quality or effectiveness of the self-regulation of franchises in general. However, I recognise that this particular case has raised concerns across the House and I will track very carefully what happens in this case and the final outcome and conclusions that any court case might come to.”
Thomas was speaking in parliament during an adjournment debate secured by the the former Conservative minister John Hayes. He told MPs: “Franchising can be used as a method to exaggerate the power of the business at the heart of the franchise and to weaken the position of franchisees. My assertion is that is common and is particular in the case of Vodafone.”
Luke Akehurst, the Labour MP for North Durham, said: “There are major corporates that treat their franchisees very badly, that sign them up on one set of terms – one rate card – and then change the goalposts.
“And then when people dissent and complain about that, they find that their franchise is withdrawn and they lose their investment when they have put a great deal into that corporate giant. I think this is a matter that, in the near future, is going to require some ministerial attention.”
Talks to settle the franchisees’ legal claim against Vodafone ended without resolution in May, leaving the case potentially heading for the high court.
Vodafone was approached for comment. It has previously said: “This is a complex commercial dispute between Vodafone UK and some franchise partners and as we have said from the beginning, we refute the claims.”
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The company has also apologised “unreservedly to anyone whose experiences while operating their business has impacted [their health] in this way” , adding: “Where issues have been raised, we have sought to rectify these and we believe we have treated our franchisees fairly.”
Vodafone has just completed a deal to merge its UK operation with rival Three to create Britain’s biggest mobile phone operator.
Vodafone’s chief executive, Margherita Della Valle, said in May that the merger would involve job cuts where the two businesses had a duplication of functions and roles, although overall it would create jobs as it embarked on an €11bn (£9.5bn) upgrade and expansion of its 5G network over the next decade.
