After receiving more than 200 submissions from interested parties, the much anticipated
Final Report from the Parliamentary Joint Committee on Corporations and Financial Services - Fairness in
Franchising (the “Committee”) into Australia’s $180 billion franchise sector was released on
14 March 2019. The 300+ page report identified evidence of systemic abuse, recommending
an overhaul of the Franchising Code of Conduct (the “Code”) (contained in Schedule 1 to the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (SR No 168 of 2014) (Cth).
An article in The Guardian noted:
“… The committee investigating franchising has recommended sweeping reforms to the
sector, including enhanced financial disclosure obligations for franchisors, greater
regulatory powers for the Australian Competition and Consumer Commission, and whistle-blower
protections for franchisees … [the Report] found the exploitation of small business
owners by their master franchise operators was ‘systemic’ and that the system gave
rise to wage theft”.
Background to the Report
On 22 March 2018, the Senate referred an inquiry into the operation and effectiveness
of the Code to the Committee, and according to a recent article in MyBusiness:
“…The committee was overwhelmingly critical of the existing regulatory framework for
the franchise industry, stating that it has ‘manifestly failed to deter systemic poor
conduct and exploitative behaviour’, and that current rules had also ‘entrenched the
power imbalance’ favouring franchisors.”
A Media Release issued by the Federal Government also outlined the need for an inquiry:
“… The committee has completed its inquiry into franchising in Australia … A decade
ago, the committee's inquiry into franchising identified relatively isolated opportunistic
behaviour by franchisors. 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 …”
Franchise Business reports the Committee put the spotlight firmly on Retail Food Group (“RFG”) in the report with a case study on the company. The report calls for further inquiries into the multi-brand franchisor’s
operations and dealings. Executive Chairman of RFG, Peter George said:
“The current management team and board completely understand that RFG’s future success
is directly linked to the profitability of its franchisees … We have instituted a
comprehensive program of investment and improvement to materially help existing and
new franchisees grow and prosper.”
RFG confirmed it will support any changes which will benefit the franchising industry.
Key Recommendations put Forward
SmartCompany reports that the Committee made a total of 71 recommendations, with one recommendation
being:
“… [the] Australian Competition and Consumer Commission (“ACCC”) should be given more
powers and responsibilities for policing bad behaviour in the sector, criticising
the regulator for past inaction, alongside ASIC … It also advised expanding civil
penalties and infringement notices to all breaches of the franchising code as well
as increasing maximum penalties to bring them in line with Australian Consumer Law (“ACL”).
The Committee noted at page xvi of the Report:
“…The committee recommends that the Australian Government establish an inter-agency
Franchising Taskforce to examine the feasibility and implementation of a number of
the committee's recommendations. The Franchising Taskforce should include representatives
from the Department of the Treasury, the Department of Jobs and Small Business and,
where appropriate, the ACCC.”
Comment on the Report
Commenting on the Report in an opinion piece for the Sydney Morning Herald, Senator Deborah O’Neill (who was the Deputy Chair of the Franchise Inquiry Committee) said:
“…During the course of the inquiry, the evidence heard in public – and in confidence,
when many franchisees were too scared of their franchisor bosses – made clear that
far too many franchisors are abusing the power imbalance between themselves and franchisees.
The list of complaints documented failure points too numerous to mention in this small
piece, ranging from unconscionable contract terms to intimidation, gross exploitation
and complete abandonment. Whilst some franchisors operate in an ethical manner, sadly
the franchising industry has come to be defined by the systemic poor conduct and exploitative
behaviour of many franchisors – to the detriment of franchisees and their workers.”
Franchise expert and UNSW Professor Jenny Buchan noted that the Committee had created a lot of work for the proposed taskforce [the
Franchising Taskforce]. Speaking to SmartCompany she said:
“They’ve recognised the limitations of what the code can do … Anything that’s beyond
an amendment to the Code is going to be more tricky to achieve, so a lot of that stuff
has been palmed off or given away to this Taskforce … [They’ve] expressed a very good
understanding of what is needed to make franchising work for franchisors, and franchisees
— economically, legally and in relationship terms.”
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