Declining franchise complaints data shows no need for state regulation

Continued moves to introduce state franchise legislation in South Australia and Western Australia, which proponents justify as necessary to reign in so-called “rogue” franchisors, are not supported by the latest statistics from the Australian Competition and Consumer Commission (ACCC).

Following amendments to the Franchising Code of Conduct introduced on July 1 last year, the ACCC also undertook to publish a report every six months on the number of complaints and inquiries it receives on franchising and small business matters.

The first report covering the period July 1 to December 31, 2010 shows the ACCC received a total of 308 complaints about franchising, and a further 224 inquiries, or a total of 532 contacts about franchising.

This compares against a total population of 1,025 franchise systems and more than 69,000 franchise outlets, according to the Franchising Australia Survey 2010 published by Griffith University.

This means that less than 0.8% of all franchise outlet owners felt the need to contact the ACCC, and of these, slightly more than half actually had a complaint.

The ACCC’s second report, covering the period from January 1 to June 30 this year shows a 20% overall decrease in both complaints and inquiries – a total of 430 for the six months compared to 532 for the previous six months.

In percentage terms, this reduces the overall population of franchise owners who felt the need to contact the ACCC from 0.8% to 0.6%.

Franchise complaints and enquiries to the ACCC: 1 July 2010 – 30 June 2011
(Compiled from ACCC franchising & small business complaints & enquiries data reports)

The ACCC has been responsible for enforcing the Franchising Code of Conduct since its introduction in 1998, and maintains a high profile in the sector. Any Google search on the Franchising Code will deliver at least four separate links in the first page of results to the ACCC’s website, so it is highly unlikely that an aggrieved or curious potential, current or former franchisee would be unaware of the ACCC’s existence or role in policing the Code and other trade practices matters.

Of course, these statistics don’t sit well with the proponents of state-based franchise legislation in SA and WA who claim that extra state protections are needed because franchisees “everywhere” are at the mercy of “rogue” franchisors. (Notwithstanding that these same proponents have never produced any statistics as to the number of franchisees affected by so-called “rogues” nor have they ever named any rogues, even under the protection of Parliamentary privilege).

Not only do the ACCC statistics indicate that franchising complaints and inquiries are miniscule compared to the size of the sector overall, but that they are also decreasing as the changes to the Code that were introduced on July 1 last year begin to take practical effect.

This inconvenient truth should be brought front and centre in the debates in WA and SA on the legislative bills currently before Parliament that seek to introduce state regulation for franchising.

In WA, Liberal MP Peter Abetz continues to push a private members bill without consultation with, or the widespread support of his own party to legislate franchising, and in doing so, seeks to avoid the need for his legislation to be subject to a regulatory impact statement and the other stakeholder consultative processes normally applied by government.

In WA Parliament on August 10, fellow Liberal Troy Buswell openly questioned the motives behind the bill and its relationship with a commercial dispute between two large fast food organisations.

But with the Federal Government already committed to a further review of the Franchising Code of Conduct in 2013, questions must be raised about the supposed need for piecemeal state action now that could be fundamentally damaging to franchising when possible amendments to a consistent national approach are potentially less than 24 months away?

Likewise, in South Australia, state Business Minister Tom Koutsantonis, assisted by colleague Tony Piccolo are attempting to create franchise legislation by stealth through fundamentally distorting SA’s Small Business Commissioner bill to subsume and embellish the Franchising Code of Conduct as an SA law.

Unlike Abetz, who is at least transparent in the name and intent of his bill in WA, the SA legislation has been cleverly designed to include franchising without once mentioning it by name through its reference to “mandatory industry codes of conduct” of which the Franchising Code is but one. The SA subterfuge is also dependent on a supposed “groundswell” of support from aggrieved franchisees, yet this is not borne out by the statistics from the ACCC.

The Council of Australian Governments (COAG) meeting in Canberra last week resulted in a press release indicating that the State and Federal Governments were working more closely together to produce a “seamless national economy” and were undertaking regulatory reforms to reduce red tape and duplication of laws.

It seems that from a franchising point of view, this is empty rhetoric but which must be addressed as a matter of urgency as the ACCC statistics show there is no case for state-based legislation.

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.