Dispute options paper to thwart state franchise legislation?

Federal Business Minister Nick Sherry’s announcement last month of an options paper featuring four potential solutions for a national small business dispute resolution framework may well be timely.

If applied to franchising, a national small business dispute resolution framework could silence proponents of state-based legislation whose arguments frequently centre around claims that current dispute resolution methods are too costly, too slow or both.

The four options are:

1. National Information and Referral Service

This would provide a telephone hotline and website directing small businesses to available dispute resolution services and assistance. Callers would be guided through dispute resolution options and then referred to appropriate services in their state or territory.

2. National Dispute Resolution Service

This service would provide information and referrals similar to option one, but also offer mediation where no appropriate low cost dispute resolution service exists.

3. National Small Business Tribunal

A tribunal would specifically deal with small business disputes. It would have the role of investigation and conciliation, backed by Commonwealth legislation. The tribunal would be both a national network and a one-stop shop for small businesses in dispute. It could be based in a capital city and potentially use existing Federal court infrastructure.

4. Small Business Advocate

The Small Business Advocate would offer independent representation of small business interests and concerns within the Australian Government.

There are relative advantages and disadvantages to each of these options, for which the Government is currently receiving submissions until June 30.

The timing of the release of this discussion paper late last month, combined with the relatively brief submission period (approximately five weeks) indicates that the Federal Government is moving to deflate attempts to introduce state-based franchising legislation, which is currently regulated nationally under the Franchising Code of Conduct.

In Western Australia, a private members bill to legislate franchising is currently the subject of a Parliamentary inquiry which is scheduled to report on June 23. The bill proposes to adopt the existing Franchising Code of Conduct, plus add local embellishments that critics claim will increase franchise compliance costs and make franchising in WA more difficult for both franchisors and franchisees.

Similarly in South Australia, another franchise inquiry there is currently examining the extent to which changes to the Franchising Code introduced on July 1, 2010 address the recommendations of an earlier SA inquiry into franchising. Although no date has been set for the current inquiry to release its report, the state Business Minister has previously announced his intention to regulate franchising, and draw heavily from a now-lapsed private members bill originally tabled in 2008.

Both of the current SA and WA inquiries were called at roughly the same time late last year, so it is quite likely that even though the SA inquiry has no advertised reporting deadline, it could well end up releasing its report fairly soon after WA.

It is too early to say if either of these reports will continue to back calls for state-based franchise legislation. While the WA inquiry has released submissions made to it on the inquiry website, SA has not done so. In WA, 114 submissions were received, of which 99 (more than 86%) opposed any kind of state-based legislation. Regardless of the weight of opinion against state legislation, the findings of these reports will determine what happens next.

But in the meantime, the Federal Government is not sitting idle. While it cannot specifically prohibit states such as SA and WA introducing franchise laws which cut across existing national regulations and despite the clear common sense of having one set of national laws instead of multiple and potentially conflicting state laws, it can take some of the heat and emotion out of the debate.

Those submissions to the current WA franchise inquiry which do support state-based legislation, and similar submissions from previous WA and SA inquiries all have a common theme which is that resolving disputes between franchisees and franchisors takes too long, costs too much money, and consequently produces outcomes which favour the party with the most patience and the most money.

By focusing on this core issue of timely and affordable dispute resolution, Business Minister Nick Sherry has stolen a march on those carrying pitchforks and torches in support of state-based legislation by potentially giving them exactly what they want, but on terms that are consistent with the existing nationally regulated framework of the Franchising Code of Conduct.

Whether the pro-legislation states like this or not, and notwithstanding that their latest franchise inquiry reports are yet to be released, good manners would infer that they will hold off further moves to regulate until the Federal Government decides which of its dispute resolution options to introduce.

Better still for the states, there may be some Federal funding to introduce the preferred dispute resolution option which may obviate the need for the states themselves to find dollars to pay for their own legislation and the bureaucracy that must inevitably follow.

A good outcome would be the selection and rapid implementation of the option which most placates the state law advocates and allows them to step back with dignity from the brink of state legislation, but which also allows the franchise sector itself to comply in a meaningful but not overly disruptive way.

Perhaps then franchisors and franchisees can focus on the truly important goals of satisfying customers and making profits under already trying economic conditions.

Click here to download the options paper. Submissions close June 30.

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for nearly 20 years at franchisee, franchisor and advisor level.

He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia, and publishes Franchise News & Events, a fortnightly email news bulletin on franchising issues and trends.