Vodafone faces £120bn legal battle over alleged ‘wrong’ business practices

Vodafone is facing a £120 million lawsuit and legal action brought by its 61 current and former UK owners, marking one of the biggest franchise-related claims to hit a major British company.

The group of plaintiffs, many of whom are long-time and loyal customers of Vodafone, claim that the telecommunications giant breached its fiduciary duty and breached the terms of its Franchise Agreement from July 2020 onwards.

Central to the lawsuit are allegations that Vodafone made “irrational and irrational” business decisions, reducing shareholder commissions without warning or explanation, allocating government support aimed at small businesses, and failing to extend rent-free periods negotiated with landlords. The plaintiffs say Vodafone’s approach is very different from the ‘true partnership’ model it originally advocated, and is at odds with the company’s public image as a pro-franchisor company.

The legal action also highlights the personal and financial toll on some franchisees. Several reported facing bankruptcy, possible home foreclosure, and debilitating mental health issues after changes in their pay structures and layoffs left them with mounting debts. One former business trustee said the ordeal “started as a dream – and ended up being a nightmare,” while another said it had crippled their ability to support their families and maintain their well-being.

In some claims, the claim claims that Vodafone cut off commissions with 14 days’ notice, and levied huge fines and penalties on partners. In one case, a lender was fined £21,000 for wrongly charging a customer £7. The group also claims that Vodafone made it difficult to take advantage of the Covid-19 business standards aimed at helping struggling small traders, using information provided by traders to reduce their commissions.

Notably, the claim alleges that Vodafone stopped paying commission on mobile phone sales altogether, despite being one of the most popular phone brands in the UK. Instead, the company allegedly paid only commission for airtime contracts, increasing its margins at the expense of consumers.

Although the franchise owners initially wanted to resolve the issues through negotiations, they said they were often met with silence or dismissal, which led them to make a unanimous decision to follow the formal legal route. The case follows Vodafone’s recent withdrawal from the British Franchise Association and could present a major challenge to the reputation of the company, which provides mobile, broadband, and other services to millions of UK consumers.

Vodafone has so far denied the allegations in correspondence before the action. With the claim now before the courts, a contested legal battle is expected. If the franchises succeed, it would represent a landmark case for the British franchising and retail sectors, raising questions about the responsibilities of big brands and the protections afforded to small business partners.

In response to Business Matters, Vodafone said: “We are aware of these allegations and take them seriously, and apologize to any business owner who has experienced difficulties. While we have acknowledged the challenges some shareholders face, we strongly dispute claims that Vodafone has ‘unfairly enriched itself’ at the expense of small businesses. Our franchise model is a commercial partnership. We offer our franchise partners a large amount of free support, but, like any business, commercial success is not guaranteed. Most of our franchise partners are profitable and there is strong demand among our current customers to purchase new stores. We believe that when problems are raised, we want to fix them and we believe that we have treated our shareholders well.”