Re: Inquiry into the Franchising Code of Conduct

Committee Secretary
Parliamentary Joint Committee on Corporations and Financial Services
PO Box 6100
Parliament House
Canberra ACT 2600

 

Dear Senators/ Members of Parliament

Re: Inquiry into the Franchising Code of Conduct

We refer to articles published by SmartCompany (copied below) that relates to malfeasance perpetrated by franchisors upon franchisees, that are ostensibly small businesses, and notwithstanding previous inquiries and changes to the Code it has not changed the behaviour.

Given that, we wish to advise of our agreement and support for that which is contained in the reports, in particular noting, “ACCC deputy chair Mick Keogh has given voice to the competition watchdog’s calls for tougher penalties for dodgy franchisors ahead of the deadline for a Senate inquiry report into unscrupulous behaviour in the franchising sector. . . Keogh said that the franchising code was “not as effective” as it could be.

“We want to see the franchising code strengthened, and supported by stronger penalty provisions, to ensure franchise systems operate well for all parties involved,” he said.”

We therefore adopt the reports as our submission to the Committee.

 

Yours faithfully

Combined Small Business Alliance

of Western Australia Inc. (CoSBA)

OLIVER MOON

Chief Executive Officer

 

Cc: Hon. Michaelia Cash, Minister for Small Business; Kate Carnell, Australian Small Business and Family Enterprise Ombudsman.

 

ACCC calls for tougher penalties for dodgy franchisors, but advocates say it needs to “man up” on improving disclosure

SmartCompany, Matthew Elmas / Monday, October 15,

ACCC deputy chair Mick Keogh has given voice to the competition watchdog’s calls for tougher penalties for dodgy franchisors ahead of the deadline for a Senate inquiry report into unscrupulous behaviour in the franchising sector.

In a speech delivered to the national Franchise Convention Legal Symposium in Melbourne over the weekend, Keogh said that the franchising code was “not as effective” as it could be.

“We want to see the franchising code strengthened, and supported by stronger penalty provisions, to ensure franchise systems operate well for all parties involved,” he said.

It comes as the franchise sector prepares for what’s expected to be a damning Senate report into the conduct of major players in the industry before the end of the year.

The Senate inquiry into the franchise sector, which has focused on the ACCC administered code of conduct regulating behaviour in franchising, is due to hand down its report on December 6.

It was called in response to several high profile scandals involving networks such as Retail Food Group, Domino’s Pizza and 7-Eleven in recent years, with allegations that the respective business models of these companies have shafted franchisees.

The report is expected to recommend changes to the code, which has been criticised by many in the space as ineffective and titled in the favour of franchisors.

In his speech over the weekend, Keogh said changes to the code, alongside new unfair contract terms legislation, will form a barrier against exploitation for small businesses.

“It is in the interests of all involved in the sector to have a clear understanding of what is required by law, so that businesses focus on becoming more competitive and growing market share,” Keogh said.

What’s likely to be changed?

Submissions to the inquiry focused on the operation of the code, various instances in which individual franchisees have been exploited by larger networks and, specifically, the level of disclosure currently taking place between parties.

Improving the level of information disclosure provided to franchisees, both before they buy into a network and after they’re in, has been a common recommendation.

Specifically, there have been calls to create a publicly accessible database where disclosure documents and franchise agreements can be published and scrutinised.

Some franchisors, including RFG, have rejected calls for more disclosure, outlining a belief that the current code offers adequate protection.

Franchising veteran and Brumby’s Bakery founder Michael Sherlock thinks that’s rubbish.

“[The inquiry] has to make everything publicly transparent,” Sherlock tells SmartCompany.

“The franchise agreement by its very nature is unbalanced … [we need] publicly available and registered franchise disclosure documents.”

Sherlock isn’t the only person calling for a publicly accessible database, UNSW Business School professor Jenny Buchan has also called for better disclosure.

ACCC needs to “man up”

Speaking to SmartCompany, Buchan echoed the ACCC’s calls for tougher penalties but said she was disappointed in the regulator’s stance against creating a database for disclosure documents.

The ACCC has argued if it maintained the database users could get the wrong idea and think that the information contained within it was completely vetted.

It says ensuring all the information on a public database was accurate and in accordance with the code would be onerous.

“It’s profoundly disappointing that they hang onto this line that its too extensive to run onto this database and people will get the wrong idea,” Buchan says.

Buchan believes there’s scope for the ACCC to work with the corporate regulator ASIC to administer a database, but says someone has to step up.

“Man up ACCC and get on with it,” she says.

Sherlock says the ACCC needed to be provided with more resources to police the franchising sector against bad behaviour, and that these funds should come from the industry.

“They need to have the resources, it shouldn’t come from the taxpayer, it should come from the system,” he says.

“[The ACCC] is such a toothless tiger.”

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Franchising inquiry: Is it time Australia launched a franchise court?

SmartCompany,Emma Koehn / Thursday, May 10, 2018

A new submission to the Senate’s inquiry into the effectiveness of the Franchising Code reveals franchisees may not even know they can take a dispute with their franchisor to mediation.

The Office of the Franchising Mediation Adviser, a Commonwealth-appointed body that helps franchisees and franchisors through mediation processes, says in its submission that since its establishment 16 months ago, it has received only 400 requests for mediation from the country’s 79,000 franchisees.

The office says “there well may well be significant unhappiness and financial difficulty being experienced by a large number of franchisees in the industry in certain franchise systems”, but it can’t necessarily tell if this is true or not because all it has to go on is the volume of complaints it receives.

The Mediation Adviser suggests the low number of complaints reflects that its services are not known to franchisees, or they are too scared to make contact with the office, though no formal speculations could be made.

The office can only take franchisees and franchisors to the mediation stage of a dispute — if nobody can agree beyond this point, the parties have to set up their own arbitration or go through the courts.

Reflecting on this, the Franchising Mediation Adviser’s submission examines whether an arbitration model should be a go-to for the Australian franchise sector, pointing to the Food and Grocery Code, where parties are able to go to binding arbitration when negotiation and mediation have failed.

How would arbitration work in franchising?

There have been several calls for a small business-focused disputes court over the years, but the Mediation Adviser’s submission says it would be tough to establish a federal tribunal because it could mess with the separation of powers.

Instead, it mentions the “highly active and effective” office of the Australian Small Business and Family Enterprise Ombudsman, which hears from countless small businesses but currently does not have the power to refer disputes to a compulsory arbitration process.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell tells SmartCompany she is investigating how her office can get involved in new dispute resolution models to help franchisees.

“It’s certainly something we’re looking at seriously. The point is very real: mediation only works when there is an interest in resolution from both parties. You can’t make someone ‘mediate’ in good faith — and you end up with scenarios, not just in the franchising space but more broadly, where court is the only option,” Carnell says.

The Small Business Ombudsman is currently undertaking an inquiry into access to justice for small businesses and Carnell says this could help drive conversations about how her office could compel arbitration to take place.

However, Australia would also have to review monetary limits for claims through arbitration so they properly reflect the losses that franchisees can sometimes experience, Carnell says.

“If people have lost their businesses and potentially their homes, that’s a big problem [in terms of monetary limits]. And fairly obviously, the court is not an option for small businesses,” she says.

A new avenue

Marianne Marchesi, franchising law expert and principal at Legalite, says her own submission to the Senate’s inquiry will echo calls for a new “avenue” of dispute resolution.

“I wholeheartedly agree with the idea — there needs to be an avenue that is affordable for people that can result in binding decisions,” she tells SmartCompany.

The biggest challenge for franchisees and franchisors now is that small claims tribunals in each state simply aren’t able to hear disputes.

“If a claim is a small claim they can use these systems, but for claims like misleading or deceptive conduct in franchising, you just can’t,” she says.

But if a franchising arbitration body is such a good solution, why hasn’t it been front of mind as stories of franchisee trauma have come out over the past year?

“We’ve probably been hearing a lot of viewpoint of franchisors so far on these issues,” Marchesi suggests.

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