Franchise Expert Blasts Australian Reforms

Franchising Solicitor Simon Young has responded to the Federal Government’s recent announcement of changes to be made to the Franchising Code of Conduct as “a patchwork of bandaid solutions that do not address the real problems in Australian franchising”.

The Minister for Innovation, Industry, Science and Research Dr Craig Emerson yesterday tabled the Government’s response to a Senate committee report into the shortcomings of the Franchising Code which was released almost twelve months ago. In that report the Senate committee made 11 recommendations for changes which themselves were broadly criticised as not going far enough to remedy the problems of rogue franchisors, misrepresentation and a lack of good faith particularly in dispute resolution.

According to Mr Young, the changes now to be implemented by Minister Emerson do little to solve the problems identified by the Senate committee and fall short of responding to the current crisis in Australian franchising.

The key changes to the Code and the Trade Practices Act include:

1. The introduction of fines and penalties for unconscionable conduct and false and misleading representations;
2. Random audits of franchise systems by the ACCC;
3. “Naming and shaming” rogue franchisors;
4. Recognising that the concept of “good faith” can apply to franchising arrangements in accordance with common law principles;
5. A requirement to explain end of term arrangements and a mandatory minimum notice period for renewals;
6. The ability for the ACCC to include all affected franchisees of a franchise group in any Court action; and
7. The creation of an expert panel to report and advise on specific inappropriate franchising behaviours with the view to defining inappropriate behaviour to be caught by the Code.

Mr Young says these changes either go too far or not far enough and do not represent the best possible outcome from the Senate committee enquiry.

“Although the introduction of pecuniary penalties into the Trade Practices Act for certain types of misconduct is a welcome start, one of the major difficulties that has faced the franchising sector in recent years is the definition and extent of what constitutes “unconscionable conduct”.

Similarly, naming and shaming rogue franchisors sounds like a good idea in theory however in a practical sense this might not be any different to the press releases presently issued by the ACCC of its successful prosecutions. As there has been no definition of what a “rogue franchisor” might be there must be some confusion about the value of this change.

Most importantly of all however is that the Government has not seen fit to address one of the most fundamental problems with current franchising practice by improving the methods of dispute resolution available to a franchisee and the ability of an oppressed franchisee to seek justice through the Court system.

Without the introduction of a Tribunal or Ombudsman arrangement the net sum of these changes is to increase the workload on the ACCC which is already unable to deal with the volume of complaints it receives. Government bodies such as the ACCC can never ensure that every franchisee receives a fair hearing for their complaint and the Minister has not made the most of the opportunity to provide meaningful reform to a franchise sector which has been desperately calling out for better justice for years.

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.

“Rather than making things better,” says Mr Young, “these changes may only make matters worse because of the uncertainties involved. Franchisors in particular will need to thoroughly review their recruitment practices and legal documentation to minimise the risk of a significant fine imposed through even an innocent misdescription of their system. Even a misunderstanding on the part of a prospective franchisee could give rise to an allegation of misrepresentation and as such the possibility of a fine up to $1,100,000.00 for corporate franchisors and $200,000.00 for individuals”.