Start-ups urged to speak out over franchise code review

The head of the federal government’s review of the franchising code of conduct says while he comes to the job with no pre-conceived ideas for what should change, topics such as bargaining in good faith, disclosure rules and mediation are all priorities for review.

In an interview with SmartCompany this morning, lawyer and small business expert Alan Wein said he also encourages as many SMEs as possible to get involved in the review, which is accepting submissions through until February 15.

“I’m very much looking forward to an interactive exchange with stakeholders – I know there are a lot of issues in the industry with regard to some of the topics involved,” Wein says.

The review, which was announced by Small Business Minister Brendan O’Connor late last week, has been on the books for years. But its confirmation has already been welcomed by the Franchise Council of Australia, whose deputy chairman Stephen Giles also told SmartCompany the review is a welcome opportunity to enhance the sector.

Wein says while he doesn’t have any expectations as to what the changes will be, “there are areas of interest that should be highlighted”. These include disclosure rules, the concept of bargaining in good faith and mediation rules – all topics that have been contentious issues within the franchising community.

“I really want to look at whether disclosure laws are adequate. Are they being complied with by both franchisors and franchisees?” says Wein.

The second key area is bargaining in “good faith”, which has been a topic of some controversy among franchisees. The inclusion of a “good faith” clause in franchising laws has been advocated by franchisees as a way of preventing disputes, where a franchisee is left disappointed at the end of a franchise agreement when their contract is not renewed.

Advocates say a good faith clause would ensure that franchisors cannot act in a way that is detrimental to their franchisees.

But the FCA has argued that such requirements are already implied in national law. The federal government chose not to include a good faith clause in 2009, but the 2013 review has left the possibility open.

“In the event a franchisor doesn’t renew an agreement, currently there is nothing in the law to prevent the franchisor from being obliged to renew an agreement without an option,” Wein says.

“This is one of the key issues that Jack Cowin and the Competitive Foods Group have been very vocal on in terms of their situation,” he says, referring to last year’s controversial dispute between the Hungry Jack’s head and Yum! the franchisor of KFC and Pizza Hut.

“This is an area I need to look into and see whether there is any need for an amendment to the code and legislation.”

Another key area for review is mediation, which Wein says could use some more clarification.

“In the event that mediation is successful, then that’s good. But statistics show about 30% of mediations aren’t successful, so what happens then? Are parties then only forced to go into civil litigation?”

“There is enormous cost, time and risk involved, and really, those issues will frustrate both the franchisor and franchisee and end up achieving nothing.”

“There is also the ability for the Australian Competition and Consumer Commission to take some action here. That needs to be looked into.”

Stephen Giles agrees this is an area where the FCA would like to see action taken.

“We feel there needs to be improvement in the quality of mediators, and the quality of the mediators as a direct bearing on the successful outcome of the mediation,” Giles says.

Wein also says he’ll be looking at the concept of dispute resolution, asking how these can be stopped more often.

“How can we provide some help in assisting parties before they reach that point?”

Overall, he says, “I’m looking forward to an interactive exchange with stakeholders”.

Small Business Minister Brendan O’Connor announced the review saying the amendments introduced in 2008 and 2010 were “working as intended”.

“Participation and evidence from the franchising sector would be welcomed and a discussion paper has been drafted to assist people wanting to make submissions to the review,” he said.

The report will be due within three months of its commencement date. Businesses can make submissions via the review’s home page here.

This story first appeared on SmartCompany.