Vodafone incentivised its security staff to increase “clawbacks” levied on its own franchisees, as part of a programme that led to the telecoms group fining its own shopkeepers millions of pounds for seemingly small administrative errors.

The policy – which included one alleged case of a £10,000 penalty for a franchisee whose mistake cost Vodafone £7.08 – involved setting “key performance indicators” (KPIs) for the telecoms group’s internal employees to collect total annual fines of £1.5m from the small business people running the FTSE 100 company’s high street stores.

The existence of the fines regime has proved controversial for years and forms part of a high court claim brought by 62 former Vodafone franchisees in 2024, who allege the mobile phone company “unjustly enriched” itself by up to £85m by using tactics MPs have compared to the Post Office Horizon IT scandal.

The court filings include an allegation that Vodafone attempted “to increase its revenue” as “senior staff members were tasked with and incentivised to implement” fines, as part of a policy that the group has since tacitly admitted was flawed.

In 2024, Vodafone told the Guardian: “We have made a number of changes to our formal processes and governance and made a series of goodwill payments to numerous franchisees. For example, we made the decision to reimburse £4.9m including VAT [£4m] across our franchise estate (this included retrospective reimbursement of fines and clawbacks).”

However, the Guardian has seen fresh details suggesting the company had specifically encouraged its own staff to increase the fines they were collecting from franchisees – while also ring-fencing the proceeds to reduce the cost of running the company’s security department.

While the company did not deny it had set its employees targets to increase penalties on its own partners, it stressed individuals were not “financially” incentivised to hit these goals.

The cost to Vodafone of investigating each individual case is understood to have been £33.20, according to former Vodafone staff members claiming knowledge of the programme, which is considerably below the £350 minimum fine given to a franchisee for a first infringement.

Figures contained within an internal Vodafone document, dubbed the “consequence matrix”, go on to detail how those charges quickly ramped up: a second violation within a three-month period resulted in the forfeiture of 15% of a franchisee’s monthly commissions, rising to 30% for a third complaint.

Franchisees could then suffer a reduction in the number of stores in their portfolio for a fourth complaint, while their franchise agreement could be terminated for a fifth offence during a 90-day rolling period, internal Vodafone records set out.

The matrix did not appear to discriminate between small stores and much larger outlets situated on bustling high streets or in busy shopping centres, which were likely to attract higher numbers of customers, complaints and commissions – and, consequently, fines. Some of the larger Vodafone franchise stores are understood to have earned commissions anywhere between £40,000 and £100,000 a month.

The document also gives examples of possible offences that could lead to a franchisee being fined including “not checking [a] customer’s delivery address”, “providing incomplete information that leads to a customer coming back” and “not applying the correct plan or discount”.

Clawbacks form only a small part of the high court claim, with the most significant area concerning an allegation Vodafone imposed “an inexplicably drastic and patently irrational and/or arbitrary cut to the claimants’ commission” when it “very substantially [preferred] its own interests without any or any proper justification, analysis, and/or process”.

Many franchisees claim the move left them with six-figure debts, anxiety about losing their homes and a “massive impact” on their mental health.

A spokesperson for Vodafone, which continues to contest the high court claim, said: “We conduct regular audits across our retail estate to ensure regulatory compliance and that our customers receive the service they deserve. On occasion, we have issued penalties to ensure these obligations are met.

“Fines and clawbacks are not in place to generate profit. They are designed to discourage behaviours which could lead to poor customer outcomes and regulatory non-compliance. We continue to run a successful franchise business in the UK with over 350 stores, and the majority of our partners have expanded their business with us.”

The company added that comparisons to the Post Office scandal are “wholly inappropriate”.