Harsher penalties, industry ombudsman floated by franchising taskforce

By Nick Hall | 26 Aug 2019 View comments

Harsher penalties and the introduction of an industry-specific ombudsman may be on the cards for Australia’s under-pressure franchise sector. An issues paper, collated by the recently announced franchising taskforce and released on Friday, confirmed the government is prepared to roll-out widespread industry reform in the wake a troublesome 18 months.

Friday’s release opens the discussion for franchisees and franchisors to submit comments on a range of issues, including dispute resolution and regulation.

“The taskforce is asking for comments that focus on the broad principles identified in this paper and will be taking into account evidence already provided to the committee,” the paper read.

Franchising taskforce background

The introduction of a franchising taskforce was just one of the 71 recommendations outlined in the Senate’s Fairness in Franchising report, with the government establishing the body in April.

The release of the issues paper begins a four-week consultation period in which the franchising taskforce will gather information to assist in the development of a Regulation Impact Statement. The statement will then advise the government on its response to the report.

“The taskforce’s approach is to consider effective and efficient ways to address issues identified by the committee, without imposing an undue burden on franchisors who are doing the right thing,” the paper stated.

Issues under review

A number of industry issues are up for discussion, with the franchising taskforce identifying dispute resolution, contract terms, exiting, franchisor rebates and regulatory compliance as primary concerns.

The franchising taskforce is seeking opinion on whether the implementation of harsher penalties or an industry-wide ombudsman may strengthen regulation. Presently, the maximum civil penalty for breaching the Franchising Code of Conduct is $63,000.

Additionally, the impact of proper disclosure is once again up for debate, after featuring prominently during the parliamentary inquiry. However, as some parties have already noted, the taskforce expressed concerns over whether an information overload was the answer.

“On the one hand, disclosure allows franchisees to make informed business decisions and helps prospective franchisees conduct due diligence. On the other hand, having more information may not on its own lead to better decision making.”

The paper also floated potential changes to the ‘cooling off’ period, asking for comments on whether franchisors should receive the same benefit.

While the paper does indicate that widespread sector change is imminent, the franchising taskforce suggested that those who operate a compliant business will likely not be affected.

“In the report, the committee acknowledged that ‘many franchisors have developed franchise systems that operate to the mutual benefit of the franchisor and the franchisees, though it also noted that ‘some franchisors were behaving opportunistically, but that the issues were relatively isolated’,” the paper read.

“The taskforce acknowledges that many franchise systems are well run and comply with the law. At the same time, the taskforce is aware that not all franchise businesses will succeed and the reasons for business failure could be related to a range of factors, including those which are not in the direct control of the franchisor or franchisee.”

To encourage all members of the sector to participate, the franchising taskforce will maintain confidentiality and not publish any feedback or responses received to the issues paper.