No “tsunami of complaints” about franchising … yet: ACCC small business report

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More than 7000 individuals contacted the Australian Competition and Consumer Commission with complaints and enquiries about small businesses and franchising in the second half of last year, according to the competition watchdog’s latest small business report.

At the top of the list of concerns are misleading representations by businesses and consumer guarantees from businesses.

But while overall complaints about franchising were down, a leading franchising expert expects the ACCC to report a greater level of complaints and enquiries about the updated Franchising Code of Conduct in the next six-monthly report.

The ACCC received 4809 complaints relating to small business between July and December 2014, along with 1861 enquiries. This compares to 5396 complaints and 1499 enquiries in January to July 2014.

Franchising related complaints totalled 239 for the period, with an additional 122 enquiries. This was slightly down on the 282 complaints and 105 enquiries received by the ACCC between January and July last year.

In 2014, small business related complaints were most likely to be about misleading conduct or false representations, with 1626 complaints received. This compares to 1359 complaints received in 2013.

An additional 82 complaints about misleading conduct and false representations were received by the ACCC in relation to franchising, down slightly from the 86 received the year before.

Around 700 people complained to the ACCC about consumer guarantees offered by small businesses, up from 520 the year before, while 337 complaints related to product safety, compared to 99 complaints in 2013. Complaints about misuse of market power more than doubled, from 105 in 2013 to 232 in 2014.

Of the franchising related complaints, concerns about unconscionable conduct rose from 29 in 2013 to 34 in 2014, while complaints about disclosure and termination of franchise agreements under the Franchising Code dropped year-on-year.

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But Jason Gehrke, director of the Franchise Advisory Centre, told SmartCompany the complaints and enquiries recorded in the report all came before the updated Franchising Code of Conduct came into effect at the start of this year.

“When we receive the next six-month report in August, we will get a better idea,” Gehrke says.

“We won’t see a tsunami of complaints about franchising yet.”

Gehrke says it is likely media attention around the introduction of the updated code will contribute equally to any increase in enquiries or complaints to the ACCC as behaviour in the sector but the conversion rate of enquiries to complaints “isn’t necessarily indicative of widespread non-compliance”.

“Perhaps people are wanting to know what their rights are and where they stand?” he says.

Gehrke says the franchising sector has “effectively been on notice since April last year” when the changes to the Franchising Code were first flagged and so franchisors and franchisees knew “these changes were coming”.

“Franchisors have had time to develop new process or systems to deal with the changes,” he says.

But Gehrke says the second draft of the code was not released publicly until November 2014, meaning franchisors faced “quite a long period of uncertainty between April and November”.

“Most people are working very hard and some have achieved compliance,” he says.

“The proof of the pudding will be the extent to which any prosecutions [by the ACCC] are successful.”