Government to amend Franchising Code

By Sarah Stowe | 29 Oct 2015 View comments

Rogue franchisors beware. That’s the message coming from the Federal Government with its long-awaited announcement on possible changes to franchising law.

Federal Small Business Minister Dr Craig Emerson has announced moves to strengthen the Franchising Code of Conduct and the unconscionable conduct provisions of the Trade Practices Act.

New measures will provide franchisees protection from unconscionable conduct, allow for random audits of franchisors and group action for franchisee redress, the naming and shaming of unscrupulous franchisors, and clarification of end of term arrangements.

However the interpretation of all these measures is not yet clear with an expert panel to be established to report at the end of January 2010 on the possibility of adding further provisions to the Code to prevent specific inappropriate behaviours and consider whether examples of unconscionable conduct or a statement of principles should be included into the Trade Practices Act.

In amendments to the Trade Practices Act protection from unconscionable conduct will relate not just to the how a contract is settled but its terms and conditions as well as the continuing behaviour of the contractual parties. Businesses will be fined up to $1.1 million and individuals up to $220,000 if found guilty of engaging in unconscionable conduct or making misleading representations.

The Australian Competition and Consumer Commission (ACCC) will be given powers to conduct random audits, take action on behalf of all affected franchisees, and issue public warnings about rogue franchisors.

In its announcement, the Government said “Under the reforms, where a large number of franchisees are harmed by the behaviour of a franchisor in breach of the Franchising Code, the ACCC will be able to apply for an order providing redress to all the franchisees, without requiring every franchisee to be party to the legal proceedings.”

Responding to the controversial issue of good faith in franchising the Government has stopped short of a good faith negotiation clause and instead announced plans to introduce preventative measures for so-called inappropriate behaviour in franchising agreements.

The release reads “The law on good faith is still evolving and there is not a single definition of standard set of behaviours that constitute good faith. The inclusion of a general obligation of good faith in the Franchising Code would increase uncertainty in franchising.”

Steve Wright, the executive director of the Franchise Council of Australia, agrees. He said “The story that we have determined from the GovernmentÕs report is that they have put their faith in franchising and rejected calls for the introduction of an explicit ‘good faith negotiations’ clause in the Code. This is a very good result.”

The Code will also be amended to state it cannot limit any common law requirement of good faith in a franchise agreement.

In its research the expert panel will also address issues of unforeseen capital expenditure, unilateral contract variation, the attribution of legal costs, confidentiality agreements and franchisor-initiated changes to franchise agreements when a franchisee is trying to sell the business.

Under amendments to the Code franchisors will be required to disclose to franchisees the process that determines the end of term arrangements, including whether or not there is a right to renewal, and give franchisees notice of their decision to renew or not to renew a franchise agreement six months before the end of the agreement.

The Government has also listed actions that will be included in Code amendments to ensure easier dispute resolution.

Wright said the moves are positive.

“The Government has not made final decisions yet. It has committed to a consultation process before it proceeds with the proposed measures. But, the franchise community can take comfort that its intentions are clear and that it is headed in a constructive direction.

“In my view, the overwhelming balance of the above initiatives is positive. Only those attempting to sail too close to the wind need be worried.”

However the proposals have not gone far enough to satisfy South Australian MP Tony Piccolo. The MP has been vocal on the subject of franchise reform and told Franchising “The penalties for unconscionable behaviour are a step forward but not far enough and good faith still has to be dealt with.”

Piccolo has been drafting a franchise-related bill to go before South Australia’s Parliament before the end of the year and intends to go ahead with this unless further measures are announced by the Government.

The Federal Government reforms are in response to reports of the Joint Committee on Corporations and Financial Services and the Senate Standing Committee on Economics, and took into account comments on a Government discussion paper on franchising and state franchising reports.