SA Government introduces franchise legislation

The South Australian Government has introduced franchise legislation by stealth via a previously unannounced amendment to its exposure draft of the Small Business Commissioner bill which enables the state to adopt and enforce penalties for breaches of existing national industry codes, including the Franchising Code of Conduct, and the Oil Code, among others.

The Small Business Commissioner Bill 2011, which is understood to already be at an advanced stage of the legislative approval process, would allow the Minister responsible for this Act to prescribe industry codes and to empower the Small Business Commissioner to investigate and prosecute for breaches, including imposing fines and penalties up to $50,000 to breaches of these codes.

Mandatory industry codes prescribed under the ACL are enforced by the Australian Competition and Consumer Commission (ACCC). The SA Small Business Commissioner Bill is silent on the issue of double jeopardy, meaning that a franchisor who breaches the Franchising Code of Conduct could be prosecuted twice for the same breach.

Despite a recent press release by SA Business Minister Tom Koutsantonis which stated that the SA Small Business Commissioner Bill is based on the existing Victorian Small Business Commissioner model, the SA Bill goes far beyond any existing Small Business Commissioner model.

The SA Bill effectively seeks to regulate franchising by allowing the adoption of the Franchising Code of Conduct as a law of South Australia, the investigative powers bestowed on the Commissioner, and the power to levy substantial fines. Failing to cooperate with the Commissioner is also an offence, meaning that any franchisor who does not assist the Commissioner will also face substantial fines and penalties, even if they justifiably believe that Franchising Code issues are the sole responsibility of the ACCC. (Read more 1; Read more 2.)

Deceptive legislation conceals franchise application

The SA Small Business Commissioner Bill applies to franchising through its adoption and prescription of industry codes of conduct under the Australian Consumer Law (ACL), but in doing so fails to specifically name these codes.

This means that the Small Business Commissioner Bill creates powers to investigate and prosecute for breaches under any of the current industry codes:

• The Franchising Code of Conduct
• The Oilcode
• The Horticulture Code
• The Unit Pricing Code

This means that all franchisors, petroleum distributors and retailers, and grocery-related businesses with operations in South Australia are subject to the potential risk of additional investigation, prosecution and fines (of up to $50,000 per instance) beyond that which may be applied by the ACCC if the SA Small Business Commissioner Bill is passed.

In adopting industry codes the Small Business Commissioner Bill does not need to specifically list franchising, petroleum, etc, as areas to come under its jurisdiction, and therefore risks creating a false impression of its application which may deceive both lawmakers and business groups into thinking that the legislation is far less wide-reaching than it actually is. Indeed the words “franchise” and “franchising” do not even appear in the Bill. (Read more.)

Additional SA changes to Franchising Code possible

The SA Small Business Commissioner Bill not only gives the SA Government the power to subsume the Franchising Code of Conduct as a South Australian law, but also leaves the door open for the state to add its local amendments to the Code.

While no specific attempt to embellish the Code in South Australia appears to be under way, the enabling legislation in the Small Business Commissioner Bill makes this possible in future. Given SA’s franchise inquiries in 2008 and again earlier this year, it is likely that future variations to the Code applicable in South Australia will be considered. (Read more.)

MP release foreshadows real meaning of Bill for franchising

South Australian MP Tony Piccolo, who first tabled a now-lapsed private members bill to legislate franchising in South Australia in 2009, has issued a press release welcoming the new SA Small Business Commissioner Bill.

Piccolo’s release reiterates that his original bill sought greater penalties for breaching the Franchising Code of Conduct, included a requirement for good faith in franchise dealings, and was designed to protect franchisees from rogue and unscrupulous franchisors. These issues were considered by a Federal Government inquiry into franchising, and in the main, were not adopted in changes to the Franchising Code of Conduct made last year.

However, Piccolo’s release states that the SA Small Business Commissioner Bill, while structured differently from his own. “…will ultimately achieve the same objectives”.

Similarly, an earlier press release from SA Business Minister Tom Koutsantonis thanked Tony Piccolo for his work which inspired the Bill, indicating that both MP’s clearly understand the implications for franchising despite the Bill not actually including “franchise” or “franchising” anywhere in its wording. (Read more 1; Read more 2.)

SA Bill mocks franchise inquiry

The release of the SA Small Business Commissioner Bill mocks the recently-concluded South Australian Supplementary Franchise Inquiry by proceeding with legislation that encompasses franchising without due regard to the inquiry’s findings.

The inquiry report, released on July 7, did not conclusively indicate that franchise legislation was required in South Australia, but did indicate that a number of recommendations from the 2008 SA franchise inquiry were yet to be actioned, including a number to be actioned by the South Australian Government itself.

The inquiry report also conceded that the majority of participants in the franchise sector favour a single national approach to franchise regulation, however SA Business Minister Tom Koutsantonis indicated in a media article just two days before the release of the inquiry report that franchise legislation was due “within weeks”. (Read more.)

Urgent action needed on SA Trojan Horse legislation: Opinion

In the main, the creation of a Small Business Commissioner is a good idea where it follows the successful model established in Victoria, and recently emulated to a large extent by Western Australia.

However, the Small Business Commissioner model proposed in South Australia – touted as being similar to Victoria’s – is radically different and contains a dangerous Trojan Horse element that undermines the whole concept of a uniform national regulatory framework for business, especially franchising and other sectors covered by mandatory industry codes of conduct.

The proponents of this bill, particularly SA Business Minister Tom Koutsantonis and Member for Light Tony Piccolo have not listened to the recommendations of their own recently concluded franchise inquiry, have ignored the repeated assertions by Federal Business Minister Nick Sherry that franchising requires a national approach only, and instead have pressed ahead with an innocuous-looking piece of legislation with a potentially very dangerous sting in its tail.

Any business in the franchise, petroleum, horticulture or grocery sector should be complaining long and loud to every SA and Federal MP about the prospect of SA creating local variations of longstanding existing national regulations that will result in increased confusion and compliance costs. It is likely that many SA MP’s are unaware of the full consequences of this Bill, given its oblique reference to “industry codes” rather than to the specific sectors that will be affected.

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.