Supplier rip-offs: ACCC red tape cuts could save businesses thousands

It will be easier for small businesses and franchisees to band together against rip-off deals under a proposal from the Australian Competition and Consumer Commission (ACCC) to cut red tape out of collective bargaining.

Under the plan floated by the competition regulator on Thursday, businesses with annual turnover under $10 million and franchisees would be able to negotiate terms of trade as a group without first getting approval.

Collective bargaining is already legal, but only when the ACCC provides its tick of approval — a process which includes payment of a $1000 fee and other costs which can quickly add up to $10,000.

The reforms would go some way to addressing concern about power imbalance between small businesses and larger firms when negotiating terms of trade, specifically in the scandal-plagued franchise sector where forced use of suppliers is common.

“This proposal would make it much simpler and less costly for eligible businesses or franchisees to collectively negotiate,” ACCC deputy chair Mick Keogh said in a statement.

“The class exemption would not force anyone to join a collective bargaining group, or force a customer, supplier or franchisor to deal with the bargaining group if they did not want to.”

The move has the support of small business ombudsman Kate Carnell, as well as the NSW and Victorian small business commissioners.

“Franchisees, in particular, will see tangible benefits as they band together to bargain for better outcomes on pricing and contract terms,” Carnell said in a statement.

Concern about class exemptions have, however, been raised by landlord lobbyist the Shopping Centre Council of Australia (SCCA), which has described class exemptions as “not necessary”.

The SCCA argued last September the notification process under current competition law “already works efficiently and effectively” and while able to reduce red tape, class exemptions could exempt firms from ACCC scrutiny over non-competitive bargaining.

The ACCC’s current proposal will still require businesses to provide the ACCC with notice of their intention to form a collective bargaining group, including details about who they’re negotiating with and what it’s about.

It would be open to businesses or independent contractors with aggregated turnover of less than $10 million in the preceding financial year, franchisees and fuel retailers.

“Rip-offs” spark calls for better bargaining

Supply arrangements in franchising have come under considerable scrutiny recently amid a broad-based Senate inquiry which recommended an overhaul of the sector earlier this year.

The practice of third-line forcing, where a franchisor makes its franchisees use products or services from a particular supplier, was singled out by the inquiry as an example of power imbalance.

Franchisors have been caught accepting rebates from suppliers they force their franchisees to use, while in other cases, franchisors have maintained a financial interest in services they force franchisees to use at prices above market rate.

Large networks such as Retail Food Group and Red Rooster owner Craveable Brands have faced allegations of uncompetitive supply terms in recent years.

A group of Red Rooster franchisees alleged in 2018 they were being “ripped off” by paying $18 for cartons of Mt Franklin water they could have bought at their local IGA for $11.

It is hoped by reducing the barriers to collective bargaining, small businesses and franchisors will increasingly be able to work together to secure more competitive terms of trade.

For independent businesses, collective bargaining can be used to negotiate with landlords and electricity retailers.

Ross Robes-Stephen, owner of Cable Beachside Villas in Western Australia, said in a submission to the ACCC the proposed exemption could assist hotel and motel owners in their negotiations with online travel agencies such as Booking.com.

“These businesses currently negotiate on an individual basis with multi-national companies, such as Booking.com, and are therefore at a substantial disadvantage,” he said.

The changes aren’t supported by everyone though. Franchisors have raised concern about the effect on competition law.

“Some franchisors have flagged competition law concerns as a reason not to negotiate with their franchisees as a group,”  Keogh said.

It is not known whether these franchisors have similar concern with the anti-competitive implications of third-line forcing.

Consultation closes on July 3.

Correction: This article was updated at 4:45PM AEST June 14 to clarify details about the SCCA’s position, specifically that it is not necessarily opposed to the ACCC’s proposal.

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