The Operation & Effectiveness of the Franchising Code of Conduct Report

Introduction

The Parliamentary Joint Committee on Corporations and Financial Services has released their report entitled The operation and effectiveness of the Franchising Code of Conduct” on 14 March 2019.  The Report is lengthy (369 pages) and makes a series of recommendations. The recommendations in part were based on written submissions received and evidence taken at various public hearings.

Heath Adams of our firm made various submissions to the Inquiry which were incorporated into the final report.  Over a series of articles, we will highlight some of the key recommendations and what those recommendations will mean for the franchise sector as a whole and franchisors and franchisees specifically.

Background

The Senate inquiry was tasked with determining the operation and effectiveness of the Franchising Code of Conduct (the Code), as well as the Oil Code of Conduct. The inquiry had a very broad ambit to consider the franchising industry and to make recommendations as to legislation which would guide future changes. Specific areas reviewed included:

  1. Disclosure: A review of specific disclosures by a franchisor before the parties enter into a franchise agreement and whether the current disclosure requirements were effective in ensuring potential franchisees could make a fully informed decision.
  2. Disputes:  A review of whether the specified procedures for dealing with disputes in the Code are effective;
  3. Unfair Contract Terms:  Whether the new unfair contract provisions in the Australian Consumer Law have had an impact on franchise agreements.
  4. Termination Provisions:  Whether franchise agreement termination provisions specified by the Code are adequate;
  5. Restraints of Trade;  Whether the imposition of restraints of trade on franchisees who terminate franchise agreements; and
  • ACCC & Enforcement:  Whether the enforcement by the ACCC of breaches of the Code and other relevant legislation such as the Competition and Consumer Act.  

What Happened?

The Inquiry accepted written submissions from all persons with an interest in the sector.  Franchisors, the Franchise Council of Australia (FCA), other association bodies, franchisees and professionals involved in the sector all made submissions.

The Inquiry also conducted public hearings where evidence was heard from relevant parties including the FCA, Retail Food Group, the Mediation Adviser and aggrieved franchisees. Most controversially, the Retail Food Group executives initially refused to give evidence until summoned to do so. In the process, key RFG executives sought High Court Order to avoid being compelled to give evidence. That application failed and the RFG executives were required to give evidence. The nature of the RFG operations attract a complete chapter in the Report (Chapter 4). The Committee’s view of RFG and its executives are not flattering (see Paragraph 4.50 – 4.76).

The Report’s Recommendations

The Report makes a series of recommendations which if adopted will result in further change to the franchise sector. Key amongst those recommendations are:

  1. The establishment of a Franchising Taskforce to examine the feasibility and implementation of the committee’s recommendations;
  2. The Government (and public sector) be placed on notice that the FCA does not provide balanced representation of the whole sector (but is rather a Franchisor representative body). The Committee also recommends the development of franchisee association body;
  3. Substantial changes to the Franchising Code of Conduct.  Recommended regulatory changes address: disclosure, franchise registration, supplier rebates, whistle blower protections, unfair contract terms, cooling off periods, exit rights, collective action, dispute resolution, binding commercial arbitration, alignment of industry codes, churning, education, and leasing arrangements.
  4. Changes to the responsibilities and powers of the ACCC.

Next Steps

Watch this space, it is clear that further change is on the way. The nature and timing of the change is in issue but the act that change will occur is not.  In the next series of articles we will review some of the issues relevant to the franchise sector.

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