“Rebuild it from scratch”: Franchising overhaul considers tougher fines and dedicated ombudsman

The scope of a prospective overhaul of Australia’s $182 billion franchising sector is being hotly debated, following the release of an issues paper late last week which proposed tougher fines and the creation of a dedicated ombudsman.

A broad coalition of industry stakeholders met yesterday in Melbourne to discuss an issues paper released by federal government’s franchising taskforce, amid emerging calls for a pivot which would see separate legislation developed to regulate the scandal-plagued sector.

Jenny Buchan, a UNSW Business School professor and franchise law expert, is among a group of franchisee advocates calling on the federal government to abandon the industry-led Franchising Code of Conduct and enshrine franchisee protections into law.

“We’ve spent so much time nibbling around the edges of the code — for 21 years it hasn’t really protected franchisee interests,” Buchan tells SmartCompany.

“We do probably need to bite the bullet and have unique franchise legislation.

“Rebuild it from scratch and incorporate the legitimate interests of franchisees.”

The franchising taskforce kicked off an initial consultation period to begin formulating the federal government’s response to a Senate inquiry into the operation of the franchising code late last week.

It released a 19-page issues paper canvassing initial principles for implementing the Senate committee’s 71 recommendations for overhauling the sector, suggesting the possibility of tougher fines for non-compliance with the code, and the creation of a dedicated franchising ombudsman.

Under current law, franchising is regulated primarily by the Franchising Code of Conduct, a prescribed industry code that’s overseen by the ACCC.

The taskforce, co-chaired by the Department of Employment and Treasury, will develop a separate regulatory impact statement later this year, ahead of a finalised government response to the inquiry.

But Buchan says the scope of the issues paper “misses the mark” and had not inspired confidence among advocates hoping the committee findings would spark a much-needed change in Australian franchising regulation.

The franchising sector has been under ongoing scrutiny for many years, with a series of high-profile scandals over the last 24 months cementing government interest in reform.

Franchisors including Retail Food Group, Domino’s and Red Rooster have all been the subject of franchisee complaints over the course of the inquiry.

However, while the consensus view is the sector is in need of some reform, opinions differ as to the extent of proposed changes.

The taskforce last week published seven reform principles to guide its further work, relating to reforms targeted at prospective franchisees, those already operating franchises, those exiting a franchise and broader regulatory concerns.

It floated potentially increasing civil fines for non-compliance with the franchising code, giving the ACCC more power to regulate the sale of franchises, and the creation of a franchising industry ombudsman to keep a closer eye on the behaviour of franchisors.

However, the taskforce also questioned whether there was a role for mandatory arbitration when mediation doesn’t resolve a problem and floated a possible industry-wide levy to fund a dedicated dispute resolution body.

Both of these proposals have angered franchisee advocates, who are worried businesses will be left holding the bag with inadequate reforms.

Advocates will meet with the taskforce in early-September to discuss the reforms and lobby for broadening the scope of potential changes, with an eye on having separate legislation developed.

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