Franchisors will be asked to provide prospective franchisees with a short, simple plain English document which sets out their rights and responsibilities. That’s the promise in reforms to the Franchising Code of Conduct announced by Small Business Minister Craig Emerson.
Franchisors would also have to make it clear to prospective franchisees that there may be unilateral contract variations, unforeseen capital expenditure, requirements to meet legal costs, and confidentiality restrictions with the franchise business. The process for the sale of the business will also need to be laid out clearly when franchisees sign up.
Dr Emerson said “The reforms will put franchisees in a better position to understand the risks of going into franchising by giving them clearer information up front about the terms and conditions on offer.”
The Minister said the reforms, which will take effect from mid-2010, will also better protect franchisees from unconscionable conduct and false and misleading representations from unscrupulous franchisors while retaining for good, honest franchisors the flexibility they need to make franchising a commercial success for themselves and their franchisees.
Dr Emerson, releasing the report of an expert panel set up to look at specific areas of concern in the franchising community, said it was vital that people considering buying a franchise had a complete understanding of the contract.
The plain English guide would be additional to the current disclosure requirements under the Franchising Code and would emphasise the key costs, benefits and risks of the franchise system.
“The Government is seeking the support of the franchising community in voluntarily producing a short simple document,” Dr Emerson said. “However, the panel has suggested the Government should consider mandating a short document of this kind if evidence emerges to indicate that franchisees remain unaware of the nature of the franchise relationship and the potential key costs, benefits, and risks of the franchise business model in general.”
Dr Emerson said the unconscionable conduct provisions of the Trade Practices Act would be made clearer to help courts with interpretation, to help regulators with enforcement, and to help people understand what was and what was not acceptable.
The Minister also favours the panelÕs suggestion that the changes be allowed to operate for three to five years to provide sufficient time to evaluate their effectiveness.
“In other words, we should let the reforms settle in and not keep changing the Franchising Code — letÕs give it a breather for a few years.
“I also encourage the ACCC and other regulators to take a robust attitude to enforcing the law, both to provide a deterrent for inappropriate business conduct, and to build the body of case law to inform our common understanding of the law,” he said.
The Franchise Council of Australia has responded positively to the new initiatives which are in-step with FCA submissions and what was announced by the Government last November.
FCA executive director Steve Wright said “The measures confirmed today are about improving what the Government has already acknowledged (about franchising), that it is a global standard-setter in terms of both business performance and regulation. The measures are about further enhancing franchisee confidence without the need for onerous compliance obligations or confusing rule changes which would do nothing but undermine investment in the sector and, ultimately, hurt both franchisor and franchisee.”
Franchise lawyer Bruce McFarlane, partner at Hall & Wilcox, said “Better information for franchisees should mean less disputes, and that’s a good thing for the franchising sector overall. However, this needs to be balanced by the amount of information that franchisors are required to provide, so it’s not too onerous a task.
“No matter what reforms are put in place or initiatives undertaken, the law cannot protect business failure absolutely. Ultimately franchisees need to do their own due diligence and seek their own independent advice,” he said.