Franchise Council of Australia reports alarm in franchise community at proposed WA legislation

Uncertainty, conflict and reduced investment in the franchising sector might result from the proposed introduction of a private members’ bill in the WA Parliament, says the Franchise Council of Australia .

Raised by Liberal backbencher Peter Abetz, and now receiving the support of WA Labour, the franchise advisory body reports that the bill seeks to impose a draconian set of new franchising rules in WA.

FCA Executive Director Steve Wright says that franchisors, franchisees and suppliers to the $10 billion WA franchising sector are understandably up in arms about the new bill.

Franchising is currently, and rightly Mr Wright says, a nationally regulated sector.

“All State Governments nationwide have agreed, through the COAG process, that the Federal Government should continue to regulate the sector. [This bill] puts the positive national push for national harmonisation of State laws grindingly into reverse gear. It flies in the face of efforts of States and the Commonwealth to remove red tape and inefficiencies, rather than create them,” he explains.

Mr Wright also notes that the bill has been drafted without consultation and due rigour, and Mr Abetz provides no data to justify the need for the bill’s introduction.

“The Abetz bill is bad for small business in WA. It threatens to undermine every franchising contract in WA and nationally - affecting up to 70,000 franchise contracts nationwide,” he notes.

Mr Wright believes that the introduction of the bill will destabilise the sector, prompting franchise business financiers to reassess and perhaps re-price risk, making it harder for franchisees to get funding and potentially forcing them to pay a higher price on business loans.

The outcome of that, he says, is that “franchisees will find it more difficult to find a buyer when they seek to sell their business, and when they do, the sale price is likely to be lower.”

The Abetz bill proposes a number of changes to the franchise sector in WA, the franchise advisory body notes, and aims to:

• introduce State legislation into a Federally regulated sector for the first time in 30 years.
• destroy the right of freedom to contract
• act retrospectively, throwing doubt over 70,000 existing contracts
• apply exclusively to franchising businesses, not to others
• upend franchising principles which have prevailed the world over for more than 30 years
• provide an ‘automatic right of contract renewal,’ removing the right of a franchisor to choose whether or not to extend a contract
• impose a personal injury compensation opportunity exclusively for franchising in contractual circumstances for which personal injury legislation was never designed
• deny natural justice and the right of appeal
• reverse the onus of proof; and
• introduce a definition of ‘good faith’ behaviour by which the commissioner will make judgements.

In addition, fines of up to $100,000 could be imposed under the new legislation. These would be lived by a single commissioner, the FCA notes, with authority far beyond the scope of any similar appointment anywhere in the country.

Disputes brought by franchisors or franchisees will inevitably rise under the uncertain and legally opportunistic conditions this new bill will encourage, the FCA states.

Speaking at the FCA’s recent National Franchise Convention, Small Business Minister Nick Sherry reconfirmed the Federal government’s commitment to regulatory stability within the franchise sector for the next three years.

Changes to the Franchising Code of Conduct that took effect on 1st July needed time to ‘bed down’, he said.

Mr Sherry also spoke out against state-based franchising laws, stating that adopting them “compounds complexity, is inefficient and is just bad governance.”

In the coming days, the Franchise Council of Australia will distribute material to every WA-based MP, whether in Federal or State Parliament, describing the detriment to franchisees, the anticipated increase in disputes and the loss of investment that the introduction of this proposed new bill will encourage.

WA Labour, the franchise advisory body concludes, should take notice of the lead of its Commonwealth colleagues on this issue.