National rules best for franchising

Things are never dull in Australia’s franchise sector. In the last few years, the industry has seen three separate Parliamentary inquiries, changes to the national Franchising Code, some ugly collapses (most notable Kleins and Kleenmaid) – and all the while, double-digit sales and profit growth.

While the collapse of dud franchise operator Allied Brands has clearly received most of the headlines in the last few weeks, attention is now turning to Western Australia and South Australia, where Government members in both Parliaments (Labor in South Australia, Liberal in Western Australia) have introduced private member’s bill designed to toughen up franchising laws in the states.

The proponents of the bills – Tony Piccolo in SA and Peter Abetz in WA – see their bills as a necessary response to the failure of the Federal Government to toughen up the Franchising Code last year, and specifically to introduce an obligation to act in “good faith” and financial penalties for Code breaches.

Then small business minster Craig Emerson examined both proposals, but ultimately decided against these, forcing the two state MPs to introduce their bills, which are essentially the same and were drafted by franchisee crusader and competition law expert Frank Zumbo.

While Zumbo, Piccolo and Abetz may have the best interests of franchisees at heart, the decision they have taken to is a worrying one for the franchise sector, which is worth some $130 billion.

This is a national sector that needs national laws, not different laws in different states, placing different levels of regulatory and compliance burden on companies.

To be fair, Zumbo and Piccolo have consistently argued that they would prefer that their draft laws were taken up at national level, and it is only the Federal Government’s refusal to do this that has forced them to act.

But with the private member’s bill process now in motion, the argument is that good franchisors have nothing to fear – these laws are only intended to catch out the rogues.

That might be the intention, but I am not sure it will be the reality.

All franchisors acting in those states will have to spend time, money and resources investigating, understanding and working to ensure compliance with the new laws. A number of franchisors will also have to deal with the initial test cases that new legislation invariably sparks. This could also be time consuming and costly.

If the laws get up, franchisors based in SA and WA will probably have to grin and bear it – I am not sure how many will really follow through on threats to move their headquarters interstate – but I would think new entrants to the Australian market would think very hard about entering SA and WA, and dealing with multiple legislative regimes.

Zumbo, Piccolo and Abetz are to be admired for passionately standing up for franchisees, but I am yet to be convinced that their proposed laws are the right thing for a national franchise sector that appears to be operating pretty well.