Government to limit franchising reform despite damning report

Cara Waters

August 20, 2020

The Age

The government will only make limited changes to the regulations governing Australia’s $170 billion franchising sector despite a bipartisan parliamentary inquiry which published a damning report last year calling for widespread reform.

The government’s reforms expected to be tabled before Parliament on Thursday will double the penalties for breaches of the Franchising Code from $66,600 to $133,200 but fall well short of the $10 million penalty called for by the Australian Competition and Consumer Commission (ACCC).

While the parliamentary inquiry’s bipartisan report published in March last year found the franchising sector had “manifestly failed to deter systemic poor conduct and exploitative behaviour and has entrenched the power imbalance” the government found “the most egregious conduct does not appear to be widespread”.

The government will not implement many of the key reforms recommended in the report including requiring greater clarity and accountability around marketing funds.

The government also rejected the report’s recommendation the ACCC be given more responsibilities and greater enforcement powers to “root out misconduct and exploitative behaviour” in the franchise sector and said reforms in 2018 enabled the ACCC to obtain evidence through a notice about whether standard form contracts contained unfair contract terms.

The reforms will also introduce conciliation and voluntary binding arbitration, mandate simplified and improved disclosure and transparency provisions, introduce a public register of franchisors to increase transparency in the sector, develop a franchising website to make accessing information easier and prohibit franchisors unilaterally imposing significant capital expenditure on franchisees.

The government will not make unfair contract terms in franchise agreements illegal as it found unfair contract terms have had a “limited effect” on franchising and could be dealt with under the Australian Consumer Law and good faith provisions of the Franchising Code.

Small Business Minister Michaelia Cash said the government was working “methodically” to deliver reform to the franchising sector while avoiding unnecessary red tape.

“The government will strengthen the regulatory framework and restore confidence in the sector while carefully designing changes in consultation with the sector to ensure they are practical to implement,” she said.

Assistant treasurer Michael Sukkar said there was a need for a stronger framework to lift franchisor standards of conduct.

“Franchising is an important part of our economy that has enabled thousands of Australians to build their own small business to support their families and create jobs in their local communities,” he said. “Our plan has been designed to get the balance right to ensure Autralia’s franchisees can trade with confidence, setting up the sector for a bright future.”

The parliamentary inquiry and subsequent report was triggered by a series of media investigations by The Age and The Sydney Morning Herald into 7-Eleven, Domino’s Pizza, Pizza Hut, Caltex and Retail Food Group where franchisees described franchising as “indentured servitude” or slavery.