Earlier this year in March, the Australian Parliamentary Joint Committee on Corporations and Financial Services handed down its 369-page report called ‘Fairness in Franchising’ (Report). The Committee’s inquiry has generated some controversy throughout the process, including among the Franchise Council of Australia and several large individual franchisors.
The Report sought to address several issues within the large franchising industry in Australia, which make up approximately 9% of Australian GDP each year. These issues often stem from a substantial power imbalance between a large corporate franchisor and a small franchisee, and the Report identifies the reality that these issues are systemic within the franchising industry and not isolated.
The Report also acknowledged that improving awareness of prospective franchisees and improving the accuracy of information given to those franchisees is only part of an effective solution.
With this in mind, among the Report’s 71 recommendations was the establishment of a taskforce to oversee the implementation of the recommendations of the Report (Taskforce). The Taskforce will be made up of the following federal departments:
(a) the Department of the Treasury;
(b) the Department of Employment, Skills, Small and Family Business; and
(c) the Department of the Prime Minister and Cabinet.
The ACCC will also be involved, providing valuable consulting to the Taskforce and potentially acting as its enforcement arm.
Among other things, the Taskforce will be charged with:
(a) Taking an active approach to prevent unfair contracting, including considering making amendments to the Competition and Consumer Act 2010 (Cth) (Act);
(b) Reviewing the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth), made under the Act) for pressure points to redress the issues of asymmetrical information and power;
(c) Examining methods of reducing wage theft, which is promoted by the franchising model since it is one of the only costs that a franchisee can control unilaterally;
(d) Examining where anti-competition provisions of the Act may be breached as a result of franchisors specifying particular suppliers in franchising agreements, including conflict of interests that arise as a result;
(e) Investigating whether a franchise register that centralises updated disclosure documentation may be viable; and
(f) Considering what amendments to the Act may be made that implement a more comprehensive and effective penalty regime.
The Report emphasises that disclosure protections, while once adequate for franchisees, are now insufficient to surmount the challenges associated with the power imbalance inherent in most franchising arrangements. It will be interesting to see how the franchising industry adapts within this context, and whether a new and improved framework will strike an appropriate balance between the interests of both franchisors and franchisees.