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Log In / Register | Apr 17, 2014

Franchise Code: Online Registration, Part 2

In this second part responding to the Federal Government's Options Paper we will consider Recommendations 2 & 7 of the Senate Inquiry, that is a ‘simple online registration system...to lodge an annual statement of the nature and extent of the franchising network and providing a guarantee that the franchisor is meeting their obligations under the Code and the Trade Practices Act' and ‘tasking the Australian Bureau of Statistics to collect franchising data'.

Sounds relatively straightforward?  Let's see if I can ‘controversify' it up a bit.....

Online registration...annual statements...guarantees

As many contributors to BMM have noted - and indeed the Senate Inquiry itself found - the lack of hard data in franchising matters makes it difficult, if not impossible to really gauge the true state of the sector.

Lodging an ‘annual statement' is vague - what sort of data should be included about the franchise network (bearing in mind that Privacy laws are relevant and franchisees are supposed to be independently owned and operated)?  Here are some suggestions:

  • A copy of the standard form franchise agreement and Disclosure Document (annually);
  • Copies of every Breach Notice issued by the franchisor (as they are issued);
  • Copies of every Dispute Notice received by the franchisor (as they are received);
  • A list of every franchisee in the system with business contact details; and
  • A separate list of every franchisee that has ceased to operate in the system for any reason (annually).

All of these documents can be - and routinely are - created electronically and so it would be a simple matter to submit them to an on-line site.  The Disclosure Document needs to be updated at least annually in nay event and as this is required to include franchisee information, there is nothing new about this information being required.

I would however remove the ability for franchisees to "opt out" of the disclsoure - and as an aside I would  prohibit franchisors from seeking to prevent a franchisee discussing their business with a prospective franchisee.

Next, a "guarantee" that the franchisor is meeting their obligations under the Code and TPA seems odd - what does it achieve when it is self regulated anyway?  Even worse, although I am sure that there are franchisors who completely comply with the TPA, I suggest that the vast majority do not and they do not even know that they are not complying.

If you are a franchisor reading this and feel inclined to disagree, let me ask you this - can you give me the contact details for your internal trade practices compliance officer?  If the answer is no (or you don't know what I am asking) - congratulations! - you don't comply with the Trade Practices Act.

In fact the Trade Practices Act is so labyrinthine that merely trying to identify the areas requiring compliance is a full time occupation, so asking for a ‘guarantee' is unhelpful.  How does it advance the interests of franchisees even if such a statement was untrue? 

Who would ensure that the ‘guarantee' is accurate and who would enforce penalties if it were not?  The ACCC already has the power to ensure compliance with the TPA but they do not have the resources to even deal with genuine franchise complaints, much less act as an auditor of every franchisor's business.  Having a guarantee of compliance will mean that the ACCC will have the power to walk into any franchisor's business to ensure the accuracy of the guarantee so:

  • (a) Do we want to invite the ACCC to take an even more minute interest in franchising when it can't discharge its full obligations as regulator now? and
  • (b) The ACCC can ask any corporation to justify its Trade Practices compliance under current laws, but very properly it exercises significant discretion regarding the use of such power.

Australian Bureau of Statistics?

I do not believe that the ABS is the right organisation to collect franchising data.  It could certainly do the job, but what is needed is a franchising department that can cover multiple roles - I will call it the Australian Franchising Office (AFO). 

The AFO will collect the data mentioned above, but if such a body were to be formed, it should encompass:

  • (a) The investigative function of the ACCC;
  • (b) The role of the Office of the Mediation Adviser (more on that in Part 4); and
  • (c) An expanded franchising dispute resolution system - perhaps in the form of a tribunal.

One organisation would be responsible for the administration of the franchising sector in a dedicated way.  By being specific to the industry - and if propoerly resourced - there is a much higher prospect that complaints would actually be investigated and compliance with procedural matters (such as the provision of data and general compliance with the TPA) was achieved.

Franchisees would also have access to a cost effective dispute resolution forum where they couldn't be 'out resourced' or 'out lawyered'..

I would retain mediation as a dispute resolution option but I would like to see a franchising tribunal that has the power to deal with franchising disputes (a book could be written on that subject alone) but a tribunal that also has the power to pro-actively intervene in disputes

For example, if copies of the Breach Notices / Dispute Notices were received in a central register it would not take long to notice whether a particular system had a high level of conflict and whether the disputes were about a certain subject.  An ‘intervention' could then occur and an investigation into the causes and possible dispute resolution options could be conducted before the whole system descends into litigation.

The concept is a hybrid tribunal/ombudsman role but surely the franchising sector is important enough to warrant its own specialised regulator?  Under this system the ACCC retains its enforcement role, but it will not have to deal with the day to day ‘froth and bubble' of franchising that it has so poorly handled to date. 

Even an upgraded ACCC with more resources (but with the current system) can do no more than increase the number of complaints it processes; it can never deal with every  dispute.

As an added benefit, an AFO would be an ideal body to provide (or co-ordinate) pre-investment education to prospective franchisees.  Whilst the ACCC has some material available (and helpful material at that), it is not automatically recognised as being a resource for investors considering a franchise. 

Having access to a centralised body of information regarding franchising, an adviser or prospective franchisee could potentially access valuable information about the franchisor under consideration as part of their due diligence process, such as the number of disputes or the turnover in franchisees.

Once "good faith" enters into the mix, having access to a broad number of standard form agreements - and knowledge of disputes over a period of time - it will become feasible for an AFO to form an opinion regarding the ‘fairness' of certain standard conditions and practices.

I look forward with interest to the improvements that the BMM coterie could make to these ideas.

Part 2 of a 4 part series:

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