Proposed changes to South Australia’s franchising system, which include implementing state-wide rather than national legislation, would cause investment in the state’s franchising sector to grind to a halt, said the Franchise Council of Australia (FCA).

On 1 October, the Rann Government announced the appointment of a Small Business Commissioner and proposed new state laws that it believes will provide franchisees with improved legal protection.

The changes were created by SA backbencher Tony Piccolo last year and have now been taken up by former Transport Minister, now newly appointed SA Small Business Minister Tom Koutsantonis.

In December last year, Piccolo introduced a Private Member’s Bill into the South Australian State Parliament that sought to strengthen to Federal Franchising Code of Conduct by introducing provision that require parties to commit to a franchise agreement deal with each other in ‘good faith’, penalise parties that breach the code and improve dispute resolution processes.

Piccolo said he is very pleased that the State Government has decided to pursue franchise law reform along the lines of the Private Member’s Bill he introduced.

These proposed new laws will be a godsend to those mum and dad franchisees who have been dealt with harshly by their franchisors, he said.

The current Franchise Code of Conduct effectively leaves franchisees at the mercy of franchisors.

Executive director of the FCA, Steve Wright, disagrees and said the planned changes are at odds with the court system, the Constitution and Federal legislation.

For good reason the Federal Government has rejected past calls for the type of changes now being mooted in SA, he said. Businesses will run away from investing in a State where they could be fined up to $100,000 for being unable to disprove a subjective allegation made against them and be denied to right to get professional help to defend themselves.

Add to that judgement by a single individual without any need for qualification or experience of franchising, and no right of appeal, and you have a classic kangaroo court.

Wright said the proposed changes are difficult to justify considering the lack of evidence of any systemic problem in the sector at the moment.

Since moves for separate rules in SA were unveiled more than a year ago, the FCA has asked to see the evidence which supports the need for such dramatic change. It has not been provided.

Earlier this year, the FCA conducted a national survey which found that 95 per cent of respondents said franchising should be regulated nationally and not subject to separate state rules. Eighty-four per cent of respondents believed that the value of franchise businesses would suffer and close to 80 per cent indicated that if implemented, the new rules would influence their attitudes towards investment.

The survey showed what we have told the Government for some time – that there is little or no upside to this legislation, Wright said. It would be bad for everyone in the sector – franchisors, franchisees and advisers – and damaging to the South Australian economy.

It would make it harder for small business owners to start franchises in SA, and more difficult to sell them _ hindering local growth of what has been one of the nation’s best performing sectors since the onset of the global financial crisis in 2008.