Emerson Fiddles While Franchisees Burn

Posted Tue, 2009/11/10 - 22:59 by Ray Borradale

Australia's Craig Emerson MP provided a media release last week on his progress concerning the Federal Franchising Inquiry. Franchisees and advocates waited a year since recommendations were tabled. Now again they call for meaningful reform as opposed to what is now on offer.

Emerson is to instigate yet another Inquiry. He has presented some good reform ‘crumbs’ that will ultimately do nothing to clean up the industry and protect ‘mum and dad’ investors across Australia from dishonest franchisor con men. Only the Franchise Council of Australia is pleased.

There had been fears that the Government would succumb to intense lobbying by some franchisee activists and academics to introduce a statutory duty of good faith, require registration of franchisors, grant explicit rights of renewal or compensation for franchisees at the end of the franchise term and introduce substantial fines for breach of the Franchising Code of Conduct (“the Code”). Stephen Giles FCA

Emerson has done nothing to give confidence to industry investors unless spin can overcome commercial and social media that is now destined to continue to warn prospects that Australian franchising is very dangerous.

This is the Release:

These are the Reforms: Reforms to the Franchising Code of Conduct

Much of the needs identified in 2 State and 1 Federal Inquiry are not dealt with;

That's a good out clause for rogue franchisors. He's talking about end-of-term agreements, but what about the promises made to franchisees at the start? There appears to be no mechanism to make sure (franchisors) are being honest and transparent when they get a new franchisee looking to enter into a business. Don Randall MP at WAToday

So what happened to the introduction of effective deterrent penalties?

That's a problem. To prove that in court, the bar is set very high. There needed to be penalties for breaches of the code, which was recommended in both (the federal) and state inquiries. Tony Piccolo MP at WAToday

What Emerson has offered will be manipulated;

The danger is that the rogues will exclude this implied duty of good faith - it should have been imbedded into the code Professor Frank Zumbo

Frank Zumbo has also suggested that Emerson’s intention to give the ACCC the power to conduct ‘random audits’ is window dressing as ‘ the ACCC already has considerable information gathering powers. The problem is not a lack of ACCC powers, but rather an ongoing failure by the ACCC to use the existing powers to prosecute the growing number of rogue franchisors in the sector.’

It must be pointed out that the ACCC has a history of being rather selective when they target a little known franchisor for typically what amounts to almost nothing compared to the atrocities pulled off daily in franchising. The ACCC never pursue anyone on the FCA buddy list so the real problem franchise systems will not fear a ‘random audit’.

As it is the ACCC can already go after rogue franchisors, but it doesn’t do so because it doesn’t have the resources to. Steven Ciobo MP

There will be no registration of franchise systems and yet the Inquiry saw a clear need to collect meaningful data. Jim Penman; ‘and every franchise should be registered and they should pay an amount for each franchise they have to perform an annual survey of every franchise where the identity of the franchisee can be withheld if that is what they want’

Who will act to install better law? Tony Piccolo MP;

once our state moves, I think you'll see both Queensland and WA will move as well. It's not desirable to have state rather than federal laws but in the absence of leadership federally, state parliament's have to act.’

The government was asked to find effective law fairly balanced with free market considerations. The Kevin Rudd government has failed;

‘Minister Emerson has shown he lacks the leadership and courage to tackle this issue. He needs to stand aside and let someone else take on the job.’ Deanne De Leeuw

Over 37 years of Federal Inquiries exposing the raw consequences and scheming practices of Australia’s franchising rackets here was an opportunity lost where the juggernaut of little folk abuse will now continue while Australia remains in line with the deficient legislation and regulation around the world that condemns future generations to be destroyed by pure greed.

It is not only the opposition calling for urgent action; members on the government side are also calling for action. Franchising transcends political boundaries. Joanna Gash MP

And yet Emerson refuses to listen to his own party.

Mark Dreyfus MP; ‘Every member of this parliament would have received, I would be certain, complaints from people involved in franchising in their electorate offices and those complaints would possibly have been in respect of some very large franchise systems and possibly in respect of some quite small franchise systems. ‘

Bernie Ripoll MP; ‘The committee was very conscious of the need to make good, sound, solid recommendations, because we all understood the need to get the right balance between regulation—and the cost of regulation—and allowing franchisees and franchisors to go about their own business, to follow the terms and agreements within their own contracts. We all support that but there is abuse in the sector by some and that needs to be dealt with.’

No matter what Emerson comes up with the reality is that scammed franchisees rarely have the financial ability to achieve a remedy. The only option was to reproduce what already exists efficiently in other sectors and give franchising it’s Tribunal. Emerson sidestepped the need to truly enhance the franchising environment.

The Senate joint committee specifically recognised that the cost of going to Court was beyond the reach of most franchisees in a dispute. Allegations that franchisors misuse their stronger financial position to intimidate franchisees from taking Court action are common however it seems that, despite the growing calls for a quicker and cheaper alternative to traditional Courts, the best the Government can do is refer the matter to an “expert panel” for further consideration. Simon Young

There are arguments against reform but they will never hold up.

We don’t refrain from making laws against robbing banks because law-abiding citizens don’t rob banks. (thanks, A) Similarly, we should not shy away from regulating abusive practices in franchising because well-managed franchise systems are not engaged in them. Dr Liz Spencer

The issue that faced Minister Emerson and the Rudd government was one of values. They have decided they value the schemes that underpin the franchising industry rather than people. The practices within rogue franchising are to be ignored. The consequences of rogue franchising are to be ignored. Nothing much has changed.

Once again in franchising we see an abuse of a more powerful position; both the political power of indifference and the financial power of backroom lobbyists. Emerson condemns more generations of families to be destroyed when he could have made a difference and set a new standard. He seemingly accepted that franchising only grows when dishonest and abusive franchising is left alone.

Drained franchisees will not have an efficient forum for remedy and there is little deterrent value for those franchisors who are attracted to franchising because they can get away with virtually anything.

Australians doubt Emerson has the courage to now listen to those that know franchising and care about the little folk. It seems he has committed to FCA and will sacrifice anyone to save face.

Emerson Fiddles While Franchisees Burn

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