THE federal government will strengthen the Franchising Code of Conduct and the unconscionable conduct provisions of the Trade Practices Act to better protect small businesses from anti-competitive behaviour by more powerful businesses.
THE federal government will strengthen the Franchising Code of Conduct and the unconscionable conduct provisions of the Trade Practices Act to better protect small businesses from anti-competitive behaviour by more powerful businesses.
The Rudd government last week tabled its response to a parliamentary inquiry into franchising and will amend the code to allow random audits by the competition regulator as well as increasing franchisor disclosure and improving due diligence by franchisees.
Amendments to the code will also clarify obligations of franchisors to give advance notice to franchisees with respect of end-of-term arrangements and mediation.
While the federal government has rejected key recommendations to implement good faith requirements in the code, it will introduce measures to prevent specific types of inappropriate behaviour in franchising agreements.
Innovation minister Craig Emerson said amendments to the Trade Practices Act will make it clear that protection from unconscionable conduct relates not only to the process of settling a contract, but to its terms and conditions and the ongoing behaviour of the parties to the contract.
Penalties of up to $1.1 million for corporations and $220,000 for individuals will apply to anyone engaging in unconscionable conduct or making false or misleading representations.
“Further, the franchising code will be amended to state that nothing in the code limits any common law requirement of good faith in relation to a franchise agreement to which the code applies,” Mr Emerson said in a statement.
The Australian Competition and Consumer Commission welcomed its new powers and allayed fears it would be an imposition on the $128 billion franchising industry.
“We don’t want to use the power to go through each and every franchise system,” ACCC deputy chair Michael Schaper told WA Business News.
“But what it does is it allows us to look into an under-performing system where franchisees may not be too happy, but fear reprisal from making a complaint or enquiry.
“What I can say is that a lot of issues in franchising, it can be a matter of law, but often it’s a matter of relationships and usually a lack of communication.”
Mike Stringer, national franchisor for Car Care and Housework Heroes, said the legislation was more relevant to top-end franchise systems such as Subway, Jani-King Australia and Bakers Delight, and that ACCC’s audit powers would become a costly burden to the lower end of the market.
“The problem with the legislation is that it’s more geared to larger franchise groups, the retail and top-end franchises,” Mr Stringer told WA Business News.
“With the smaller groups like ours, when new legislation like this comes in, say when the ACCC want to look at our books, there’s an increase in compliance costs, so there’s an additional cost that comes with this legal obligation.
“For the big groups like your McDonald’s, there’s only a minimal cost to get a lawyer in to change agreements, so from my perspective this legislation is based around the bigger players.”
City Farmers operations manager, Leon Pike, said he was happy the government did not alter the end of agreements clause to give franchisees negotiating power.
“The very premise behind franchising is that you know that you are only buying that brand for a period of time,” he said.
“It defeats the purpose if a franchisee turns around at the end of an agreement and says, ‘no I’m staying put’, so it’s good that this clause has not been touched.”
