ACCC calls for more protection for franchisees

With stronger penalty provisions.

ACCC deputy chair Mick Keogh (pictured) has called for changes to Australia’s Franchising Code of Conduct in a speech delivered at the National Franchise Convention Legal Symposium in Melbourne.

He said Australia’s Franchising Code of Conduct needs strengthening to better protect franchisees, including significantly increased penalties for breaches, and requiring improved and more meaningful information disclosure to franchisees.

These changes, in combination with stronger unfair contract terms (UCT) law, would help to improve the operations of franchise businesses in Australia.

“We want to see the Franchising Code strengthened, and supported by stronger penalty provisions, to ensure franchise systems operate well for all parties involved, to encourage compliance with franchise agreements, and to keep competition on an even keel,” Keogh said.

“It is in the interests of all involved in the sector to have a clear understanding of what is required by law, so that businesses focus on becoming more competitive and growing market share, rather than being tempted to take shortcuts that will ultimately damage the business, but also the reputation of the franchise sector as a whole,” he said.

In his speech, Mick Keogh recognised the importance of franchisees doing their due diligence including by seeking independent advice before investing in a franchise.

The Franchise Council of Australia is recommending franchise systems be registered on a public register. However, Keogh raised concerns this may create the perception that information provided by franchisors has been audited and verified, or ‘accredited’, and would result in fewer potential franchisees doing their due diligence.

Keogh also raised a number of concerns with the business-to-business UCT laws, which work to protect small businesses from being forced to accept overly onerous or unfair terms in standard form contracts they are offered by big businesses.

“The biggest limitation within the current legislation is that unfair contract terms are not illegal. The worst that can happen under the law is that unfair terms are subject to legal challenge, the Court declares them to be unfair and effectively strikes them out of the contract. But a business does not face a penalty for including them in the first place,” he said.

“So, lacking a legal impediment, and without fear of financial penalties, businesses have an incentive to include potentially unfair terms in their contracts. We want to see this changed to more adequately protect small businesses, including franchisees.”

Keogh also updated delegates at the Convention about a potential ‘class exemption’ to allow small businesses, including franchisees, to negotiate collectively without having to seek the ACCC’s authorisation.

“A collective bargaining class exemption could provide a ‘safe harbour’, so that qualifying businesses like franchisees could engage in collective bargaining with a common supplier, without the risk of breaching competition law.

“Normally, the process for getting ACCC approval to collectively bargain can involve paying a lodgement fee and perhaps paying a lawyer, and in complex cases it can also take up to six months to finalise. However, the class exemption mechanism can streamline this process for many small businesses and franchisees, saving them time and money.”

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