State government reviews
The catalyst for the Western Australia review appears to be a decision by Yum Restaurants not to renew franchise agreements for 50 KFC franchised stores in Western Australia.
The franchisee (who is associated with Jack Cowin) has apparently said that Yum offered to buy the 50 KFC outlets at a price that the franchisee thought did not recognise 38 years of goodwill.
The terms of reference include a review of the adequacy of existing State and Federal legislation; to identify whether there are trends in relation to unconscionable conduct and whether franchisees had adequate remedies. The inquiry is being asked to consider including a ‘good faith’ obligation into the Code which may have serious consequences if it were to apply to renewals or extensions of franchise agreements.
The terms of reference for the South Australian review are:
1 disclosure of information to potential franchisees
2 dispute resolution processes
3 formalities required of a franchisor who wishes to conduct a franchise, and
4 any other matter considered relevant by the committee.
The presiding member of the inquiry has made some comments, which are potentially inflammatory about franchising, and is suggesting a solution before the inquiry has concluded by stating:
‘franchises are a very risky investment’
‘a lot of franchises go broke but the public don’t see it because the franchisor keeps the business going’ (and presumably can run it profitably!)
‘what we really need is a tribunal system that avoids the courts’.
We will let you know the results of the inquiries when the committees publish their reports. The Franchise Council of Australia will be making submissions to each inquiry committee to ensure each committee understands the broader views of the franchise sector and to prevent any ‘knee-jerk’ recommendations.
Thomson Playford Cutlers works with franchisors as a strategic partner to improve overall network performance. We manage compliance issues and address the legal considerations that contribute to franchise network efficiency, profitability and expansion.
13.02.2008
FCA Member
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