Calls to protect small business

Russell Emmerson
May 17, 2013
News Limited Network

AUSTRALIA’S $202 billion franchising sector should be backed by penalties and better disclosure of joint marketing funds, a new report says.
The Federal Government-backed review of the Franchising Code has also called for the introduction of a duty of good faith – a new element designed to counter allegations of franchisors refusing to offer extensions to contract terms after franchisees have built up a new business.

Parliamentary Secretary for Small Business Bernie Ripoll has not committed to the report’s 18 recommendations but said he will consult to ensure the sector “can continue to grow and develop as an essential part of our economy”.

The sector has long been wracked by tension between franchisors and their contractors, the franchisees, with legal cases highlighting the disparity in power and potential for abuse.

The Australian Competition and Consumer Commission recently abandoned its regulatory neutrality and called for penalties to enforce breaches of the Franchising Code – now backed by a recommendation of $50,000 penalties for breaches and broadening the ACCC’s powers to demand documents.

The review, undertaken by Alan Wein, has also squarely addressed concerns about the administration of joint marketing funds.

Mr Wein has recommended the funds be kept under trust – thus ensuring the franchisor has a duty to account for the funds to franchisees – and that company-owned units contribute the same amount as franchised units.

The fund would also be audited annually, if the recommendations are adopted.

The report has dismissed calls for recognition of franchisee goodwill at the end of the contract and limited the scope of “good faith” to be introduced under the Code.

The Franchise Council of Australia welcomed the report and again called for a consistent approach a direct challenge to South Australia, which is preparing its own Franchising Code that is likely to be inconsistent with the provisions of the Federal Code.