FCA, ACCC and Franchise Redress respond to franchise report

By Sarah Stowe | 18 Mar 2019 View comments

The franchise inquiry report is a complex document with wide-ranging proposals for the sector and for government. So how are the Franchise Council of Australia, the Australian Competition and Consumer Commission, and Franchise Redress responding?

What the FCA says

The Franchise Council of Australia has released its own 14 page response. The peak body supports the thrust of the great majority of the recommendations put forward in the report. However it does list areas of “significant disappointment” in the findings.

It believes the committee failed to look at business issues the peak body counts as the “root cause” of upsets but which were defined as franchise-specific problems. For instance the thorny issue of shopping centre rents. “The issue of retail tenancies is by far the biggest concern and it is no coincidence that the vast majority of complaints to the Inquiry came from the food sector.”

It was a major error not to recommend mandated legal and accounting advice for franchise buyers, the FCA suggested.

“The FCA considers that this action would be the single most important initiative to reduce the level of distress and disputation in Australian franchising,” the response said.

It will however become a mandatory requirement for FCA members.

Another oversight was the framing of franchisors as big business which is both an inaccurate reflection of the predominantly small-business sector and likely to lead to poor policy decisions, the FCA said.

It also pointed out that many allegations made to the committee would appear to be breaches of current law. Rather than further regulation the real issue, the FCA suggested, is that formal complaints were not considered and little meaningful assistance was provided.

“There is a clear gap between public expectations of industry oversight and regulatory enforcement, and the current mandate to the ACCC and others,” the FCA said.

“The report touches on broadening the ACCC’s mandate, and increasing ACCC funding. This is vital, as ultimately the success of any regulatory framework is a direct result of effective oversight and adequate funding.”

What the ACCC says

A spokesperson for the Australian Competition and Consumer Commission told Inside Franchise Business the wide ranging report will take the ACCC some time to consider.

“A number of recommendations align with concerns we have raised, for example, our call for civil penalties to be applied for all breaches of the Franchising Code, which the parliamentary committee has recommended a task force look at.

“If implemented by government, the ACCC would look forward to working as part of the Franchising Taskforce to consider the issues further in order to address the committee’s report and to provide advice to Government for their response.”

The ACCC emphasised both the “significant resources” and the enforcement work devoted to franchising.

What Franchise Redress says

Franchise Redress director Maddison Johnstone told Inside Franchise Business “Our observations in the franchise sector pointed to problems that were not isolated to a few franchise systems. It was encouraging that the committee came to the conclusion that there are systemic issues in franchising as this will enable real change to be discussed and implemented.”

Johnstone said “Churning of franchisees has been a problem that we have seen in large franchise systems, but also franchise systems that are trying to grow quickly.

“This obviously leads to a moral dilemma for franchisees who are trying to avoid financial devastation by selling their franchise, but know they are selling an unprofitable business to someone who will likely end up struggling financially.

“The committee’s recommendation of intervention powers for the ACCC where a franchisor has a track record of churning will be particularly helpful to these franchisees and could stop churn before it becomes heavily relied upon by franchise systems.”

Franchise Redress maintains that public access to disclosure documents will help franchisees and prospective franchisees in their business decisions.

Greater transparency will also assist the wider franchise community in advising and consulting franchisees and franchisors, Johnstone said.

“We know that franchisees would also greatly benefit from full disclosure of rebate arrangements with suppliers, and this is something that ethical franchise systems would be happy to disclose up front.”

Read the cheat’s guide to the report.