Proposed SA franchise laws could lead to constitutional challenge

The Federal Government vehemently opposes the introduction of state-based franchise legislation but is largely powerless to prevent its introduction by states such as South Australia or Western Australia, and is unlikely to challenge the constitutional validity of state franchise laws.

Speaking at the Franchise Council of Australia’s national convention this week, the federal Minister for Business and Deregulation Senator Nick Sherry said he regretted that franchising was not included in the Council of Australian Governments (COAG) reform agenda.

Sherry said that if franchising was part of the COAG reforms it would give the federal government funding leverage over those states which seek to create additional franchise regulation rather than work towards harmonisation of state and federal laws.

However, in the absence of COAG influence, it may require a constitutional challenge to repeal any state franchise laws after they are introduced, with Sherry indicating that it would be up to others rather than the federal government to launch such a challenge.

So while the Federal Government remains firmly opposed to the idea of states creating their own franchise laws, it is unable to prevent their introduction.

This doesn’t provide a free-pass to the advocates of state-based franchising legislation, and should put them on notice that the federal government will not take kindly to state interference in its regulatory sphere of influence. While funding programs tied to COAG reforms may not be effected if state franchise legislation proceeds, the prospect of a constitutional challenge should be noted.

After all, the outcome of constitutional challenges don’t always go the government’s way, and states should heed the lesson that governments don’t always get it right following the successful High Court challenge to the legality of the Malaysian deal to process asylum seekers, for example.

Yet this is the risk that South Australia takes if it continues with its Small Business Commissioner bill in its current form. Similarly the same risk exists if the proposed private members bill to regulate franchising in Western Australia is successful.

However it is still not too late for common sense to prevail, particularly in relation to the intent versus the extent of the proposed South Australian bill (see previous blog on this topic).

The idea of a Small Business Commissioner to provide access to low-cost dispute resolution has already been proven and supported by the franchise sector in Victoria.

The SA Small Business Commissioner bill, supposedly based on the Victorian model, actually goes much further by giving the SA Business Minister unfettered and totally non-transparent powers to prescribe and amend industry codes. Press releases from both the SA Business Minister himself Tom Koutsantonis and his parliamentary colleague Tony Piccolo leave no doubt that franchising will be one of the first codes to be prescribed.

Yet the risk to franchising – and other sectors such as petrol retailing and horticulture – may be minimised by a common-sense amendment to the bill to exclude existing national codes of conduct.

This amendment would give the franchise sector the certainty that it needs to continue to view South Australia as a viable business destination, plus all the SA government to create the dispute resolution services that emulate those in Victoria.
Sometimes it takes someone to point out the bleeding obvious when rhetoric and argument cloud the air.

Low-cost and accessible dispute resolution is good for franchising (or any other business sector for that matter). So too is nationally-consistent franchise legislation.

If the independents and minor parties who hold the balance of power in the South Australian upper house amend the Small Business Commissioner bill along these lines, rather than passing it “as is”, both the state and the franchise sector – including both franchisors and franchisees – will be better off.

The alternative is to create further uncertainty which would result in a reduction in franchisor investment in South Australia and potentially a legal challenge in which no government can be assured of victory.

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.