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David v Goliath: Are franchisees finally about to get a fighting chance?


The Australian Government is working on an improved Franchising Code of Conduct. But the Australian Competiton and Consumer Commission warns it might not be enough to level the playing field for franchisees, writes Robert MacDonald

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Are lawmakers finally about to level the playing field for David-sized franchisees facing off against franchisor Goliaths?

Quite possibly not, according to the Australian Competition and Consumer Commission in its submission to an Australian Government review of the current Franchising Code of Conduct, which has now been running for nearly 12 months.

“The ACCC is increasingly of the view that the regulatory approach such as the Franchising Code, even in an amended form, will never be adequate to address all the systemic issues associated with the sector,” it says.”

“The proposed incremental changes to the current regulatory framework will not address the fundamental problems that stem from the power imbalance between franchisors and their franchisees.”

Lawmakers have struggled to address that power imbalance since the earliest days of franchising in Australia.

The current review of the code is the latest of at least 20 attempts over the past several decades to find the right rules to oversee a part of the economy that now accounts for around 9 per cent of gross domestic product.

There are an estimated 80,000 individual franchise outlets in Australia today – from a standing start in the late 1960s, when the first fast-food franchises began appearing around the country.

The latest review of the Franchising Code was sparked by a Senate committee report titled “Fairness in Franchising” delivered to the Government in March last year after a year of hearing and more than 400 submissions.

The Senate committee, which had conducted a similar investigation 10 years earlier, found that despite all the effort to even up the odds for franchisees, things had become worse, not better.

“A decade ago, the committee’s inquiry into franchising identified relatively isolated opportunistic behaviour by franchisors,” it said.

“The current inquiry has identified something much worse: systematic exploitation of some franchisees by a subset of franchisors and a regulatory framework that does not provide adequate protection against such practices.

“The current regulatory environment has manifestly failed to deter systemic poor conduct and exploitative behaviour and has entrenched the power imbalance.”

The Senate inquiry recommended more than 70 changes to the existing code of conduct and the associated Competition and Consumer Act.

They ranged from greater disclosure requirements for franchisors and longer cooling-off periods to improved whistleblower protection.

“The recommendations are designed to lift standards and conduct across the industry and to rebuild confidence in franchising in Australia,” the report says.

The Government responded to the Senate’s damning findings by establishing an inter-departmental Franchising Task Force, which has spent the past year developing options papers and conducting public consultations.

But according to the ACCC, tweaking the system isn’t enough.

It argues that the underlying problem is that the current rules focus on dealing with misconduct after it has occurred rather than stopping it happening in the first place.

“In the ACCC’s opinion this regulatory gap leads to significant detriment for some franchisees,” it says.

The ACCC believes the lawmakers should consider a licensing regime for franchisors, as well as tougher financial penalties.

It says a licensing regime “could impose a range of prudential requirements on a franchisor both at the start of, and during the life of a franchise business, and place certain preconditions on the franchisor in seeking to attract franchisees.”

The regulators and lawmakers acknowledge there are plenty of good examples of franchisees and franchisors working together for mutual benefit.

But as the ACCC says, “it is in the interests of these businesses to prevent unscrupulous operators from continually tarnishing the reputation of the sector, and an appropriate licensing regime appears to be the best mechanism to achieve this.”

The Government has given no indication whether it has taken the ACCC’s licensing proposal on board.

The Task Force finished its public consultations on possible changes to  existing law in December last year but since then, there’s been silence and no hint of when the Government might reveal the new code of conduct.

But when the changes are finally announced, will they be enough to give franchisees a fighting chance?

Quite possibly not.

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