Franchising embodies a power disparity in the franchise relationship and that needs to change. That’s a fundamental finding of the parliamentary inquiry into the franchising code which offered no surprises in terms of its overarching recommendations. The report published today outlined measures to increase franchisee protections.

The message was loud and clear that franchising needs greater transparency, improved franchisor accountability and more mandatory disclosure. Franchise buyers need to have easy access to independent advice, the committee advised.

Franchisees need national body

It encouraged the formation of a national franchisee association to fairly represent the group’s interests. This is something not currently achieved under the structure of the franchisor-dominant Franchise Council of Australia.

The committee highlighted the need for a national register of all franchise companies.

There were also recommendations that the committee believes will mitigate the “incentives to engage in wage theft”.

The report was critical of intimidatory behaviours exhibited by some franchisors: “the extent and breadth of misconduct and exploitation by franchisors within the franchise sector demonstrates that disclosure and transparency alone, while vitally important, are an insufficient response to power and information asymmetry”.

It recommended greater whistleblowing protections, more responsibilities and power for the code’s governing body, the Australian Competition and Consumer Commission. The committee included ASIC in its sweep of bodies with some responsibility for the sector.

What next?

The Franchise Council of Australia welcomed the report, telling its members “Two key initiatives that the FCA is supporting is the establishment of a registry of all franchises in Australia, and the mandatory requirements to obtain legal and financial advice prior to entering a franchise agreement.”

The report suggested a new group should be charged to take the committee’s recommendations to the next stage.

“The committee recommends that the Australian Government establish an inter-agency Franchising Taskforce to examine the feasibility and implementation of a number of the committee’s recommendations. The Franchising Taskforce should include representatives from the Department of the Treasury, the Department of Jobs and Small Business and, where appropriate, the ACCC.”

Read the full report here.

Retail Food Group in firing line

The committee devoted a whole chapter of the 369 page document to an RFG case study, and recommended an inter-group investigation into the franchisor’s operations and dealings.

The report cited concerns over issues such as tax avoidance, compliance with company director duties and the Franchising Code of Conduct, Australian Consumer Law, and insider trading.