Franchise Council of Australia report that Government puts its faith in current regulatory settings

The Federal Government has delivered its long awaited response to the Federal inquiry which concluded in December last year. The Federal Government has proposed some new initiatives that should provide new franchisees with even more confidence in the business model. It has avoided implementing some of the more drastic measures mooted in the Federal inquiry and the WA and SA inquiries which preceded it.

The Government has listened to the Franchise Council of Australia and other voices throughout the franchising community and has decided against implementing a ‘good faith negotiations’ clause into the Franchising Code of Conduct. It has also rejected any move to link unconscionable conduct provisions of the Trade Practices Act to breaches of the Franchising Code of Conduct.

Planned new Code initiatives cover four key areas. They will:

• Make it easier for franchisees to understand their rights and obligations, particularly in relation to what happens at the end of the franchising agreement. Franchisors will be required to follow a set of ‘end-of-term’ guidelines for the process of concluding a franchise agreement or negotiating a new one. 
• Clarify dispute resolution guidelines to enhance the mediation process. Positive dispute resolution behaviour will be reinforced, including attending and participating in good time and declaring intentions at the outset. Guidelines will also reinforce the importance of honouring confidentiality agreements and not, for negotiation purposes, taking actions which could undermine the business brand during dispute resolution. 
• Steer clear of confusing legal changes. The Government has decided against an explicit ‘good faith’ provision in the Franchising Code, noting that the concept of good faith in business negotiations is already covered in the Trade Practices Act . The Government has agreed FCA submissions that any extra inclusion would likely create confusion and lead to unproductive legal argument – adding cost and providing little or no benefits to franchisees or franchisors. 
• Create an expert panel. Rather than take the ‘good faith’ inclusion path, the Government said it was happy to consider identifying any specific behaviours which were considered at odds with the positive intent of the Franchising Code. It is setting up a panel of experts to give quick consideration to this question – requiring a report back by the end of January 2010.

The expert panel will also look at the usefulness of listing examples of what can be considered as ‘unconscionable conduct’ – behavior outlawed under part IV of the Trade Practices Act.

An important aspect of this initiative is that the Government has asked the panel to consult with retail tenancy representatives as well as franchising and small business organisations more broadly. This is also consistent with FCA submissions.

The Government has also decided to grant the ACCC the power to conduct spot audits of franchise systems. This is a sharpened ‘access’ power, but it does not change the proof necessary for the ACCC to launch any kind of legal action.