Franchisors in the firing line following Joint Parliamentary Inquiry

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The Joint Parliamentary Inquiry into Australia’s franchising sector has put franchisors in the firing line, following the release of its hard-hitting report on 14 March 2019.

The findings liken the serious misconduct in the franchising sector to that uncovered in the financial services industry by the Banking Royal Commission.

The report makes a raft of recommendations in view of its finding of systemic misconduct and exploitation by franchisors, including:

  • Civil penalties – civil penalties to be made available for all breaches of the Franchising Code, with penalty amounts similar to those currently available under the Australian Consumer Law (ACL).  

    Penalties under the ACL were increased last year to a maximum of $10 million or 3 times the benefit received from the conduct or, if that can’t be calculated, 10% of annual turnover – ouch!

  • Regulatory enforcement – more responsibilities and greater enforcement powers for the Australian Competition and Consumer Commission (ACCC) to undertake “a series of investigations to root out misconduct and exploitative behaviour in the franchise sector”. 

    The Australian Securities and Investments Commission (ASIC) is also expected to take proactive action in monitoring franchisor corporate governance and taking enforcement action. 

  • Collective action – allow franchisees to undertake collective action against franchisors, such as joint negotiation and disputes.  The ACCC has already proposed to make it lawful for franchisees to collectively bargain with their franchisor (regardless of size or characteristics!).

  • Disclosure and registration – franchisors to provide updated disclosure documents and template franchise agreements annually, to be kept on a public franchise register (civil penalties to apply for non-compliance).

  • Unfair contract terms laws – unfair contract terms in franchise agreements to be made illegal and civil penalties to apply for non-compliance.  The ACCC is already advocating for this change. 

While the recommendations are not law (yet), with an election around the corner and the regulators keen to show muscle following the Banking Royal Commission, it won’t take long before franchisors feel the heat.

In fact, it has already started with recent enforcement action by the ACCC against franchisors, including Retail Food Group, Geowash and Ultra Tune.

How can we help?

If you are a franchisor and you are unsure of your obligations, or you have been contacted by a regulator in relation to your franchised business, please do not hesitate to contact Peter Wright or Suzanne Howari.

 

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Peter Wright

Suzanne Howari