The Australian Competition and Consumer Commission (ACCC) has called for greater transparency and education in franchising operations following a series of high-profile compliance issues.
Speaking at the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the Franchising Code of Conduct, ACCC deputy chair, Mick Keogh told the committee that the Commonwealth authority was concerned over the prevalence of current conduct issues.
“We are aware of systematic conduct within the franchising industry involving underpayment of employees,” Keogh said.
“While we have deep sympathy for the individuals affected by this situation, we need to be clear that we do not have the power to intervene in response to breaches of workplace laws. This power sits with the Fair Work Ombudsman.”
In its submission to the inquiry earlier this year, the ACCC championed strong reform, calling for harsher penalties for franchisors who breach the code of conduct, increasing the $63,000 limit to a much steeper $10 million.
At the public hearing on Friday, Keogh reaffirmed his stance, however advocated caution in regard to a recent proposal that would require all franchise documentation to be registered with the ACCC.
“We note proposals to address some of the problems heard by this Inquiry by requiring franchise documentation to be registered with the ACCC. We don’t think this will solve the problem,” Keogh said.
“Our concern with this proposal is that it creates the very real risk of a perception that a particular franchise has been ‘accredited’ by the ACCC, and that prospective franchisees therefore do not need to seek advice or conduct a detailed business assessment before agreeing to sign up.”
The subject of due diligence has been widely critiqued throughout the inquiry, with several franchise networks accused of misleading prospective franchisees.
Keogh suggested a greater emphasis on education and transparency would help new entrants to the system better understand the feasibility of a franchise opportunity.
“We want to see more effort invested in encouraging prospective franchisees to take meaningful steps to understand what they are investing in,” Keogh said.
“The party that takes the most risk in entering these relationships is clearly the franchisee, who needs to be able to better understand the risk they are taking, their ability to incur any losses, and what will happen if their significant investment in money, time and hard work does not pay off.”
Each year, around 400 of the ACCC’s 250,000 reports relate to franchise networks, with dispute resolution through mediation or private action the regular outcome.