INSIGHT

Franchising in the spotlight

By Miriam Stiel
Industrials Intellectual Property Patents & Trade Marks

In brief

Franchising issues are top of the agenda, with the Senate beginning a parliamentary inquiry into the operation and effectiveness of the Franchising Code of Conduct. Meanwhile, the ACCC has recommitted itself to focusing on Franchising Code issues and business-to-business unfair contract terms. Senior Associate Julia Taylor and Lawyer Anna Conigrave report.

Background

The Franchising Code is a mandatory code regulating the conduct of participants in the franchising industry. Its aim, largely, is to protect the interests of Australian franchisees (generally, small businesses) who are often contracting with large, multinational, corporate franchisors.

Governments have long grappled with how best to regulate franchising. A national franchising code of conduct was first introduced in 1998. Between 2006 and 2013, there were at least eight Commonwealth and state reviews of franchising, and numerous amendments to the 1998 code. In 2014, the 1998 code was repealed and replaced with the current Franchising Code. Since then, other measures have been implemented to regulate franchising, including the business-to-business unfair contract terms regime and workplace law reforms. It seems the Senate isn't convinced these measures are the answer, and further change may be on the way.

Senate inquiry

On 22 March 2018, the Senate referred an inquiry into the operation and effectiveness of the Franchising Code to the Parliamentary Joint Committee on Corporations and Financial Services. The inquiry also covers the Oil Code of Conduct, which is a separate mandatory code regulating wholesalers and resellers of certain petroleum products.

The terms of reference for the inquiry are broad and require the Committee to report by 30 September 2018 on matters including:

  • the operation and effectiveness of provisions of the Franchising Code and Oil Code relating to disclosure to prospective franchisees, dispute resolution, and termination of agreements;
  • the enforcement of breaches of the Franchising Code, Oil Code and other relevant laws;
  • the imposition of restraints of trade on former franchisees;
  • the impact of the Australian Consumer Law unfair contract provisions on franchise agreements; and
  • the extent to which other mandatory industry codes of conduct contain positives or negatives for franchising relationships, when compared to the Franchising Code.

Interestingly, in a statement issued by the Franchise Council of Australia (FCA), Executive Chairman (and former Minister for Small Business) Bruce Billson said that the FCA wasn't consulted on the terms of reference, although it is 'the recognised and respected representative body of the franchise community'. The FCA has encouraged 'all stakeholders in the success of Australian franchising to contribute to the parliamentary inquiry'. No doubt there are many issues that will be ventilated by both franchisors and franchisees.

The Committee is accepting submissions until 4 May 2018.

ACCC focus on franchising continues

The ACCC is responsible for enforcing compliance with the Franchising Code and related consumer laws. Last year, the ACCC took five enforcement actions in respect of alleged breaches of the Franchising Code. Its victories included securing court-ordered penalties against the Pastacup franchisor for breaches of the Franchising Code. It also took action in respect of business-to-business unfair contract terms, including obtaining a court declaration (by consent) that certain terms in JJ Richards' standard form contract with small businesses were unfair and void.

In a recent ACCC media release, the ACCC Deputy Chair, Dr Michael Schaper, was quoted as saying that, this year, the ACCC will have 'a particular focus on Franchising Code of Conduct issues involving large or national franchisors', and will 'continue its work in relation to business-to-business unfair contract terms'.

Watch this space

We will provide updates during the course of the year on the status of the parliamentary inquiry, and noteworthy ACCC enforcement action.