Call for impartial franchisee umpire
FINANCIALLY struggling franchisees require access to an independent arbitrator to solve disputes with more powerful franchisors, a parliamentary inquiry into the sector has heard.
Head of the office of the franchising mediation adviser, Derek Minus, told a parliamentary joint committee on corporations and financial services inquiry in Brisbane last week that franchisees usually could not afford to take a franchisor to court when a dispute arose.
“It is all too much for a franchisee who is struggling,” said Mr Minus. “What small business franchisees need is a determination through an independent arbitrator.”
The inquiry is hearing evidence into whether the franchising code of conduct needs strengthening following complaints from franchisees about the behaviour of highprofile brands including Domino’s, Foodco and Retail Food Group.
Mr Minus said areas of dispute included leases, costs and supply agreements, which saw rebates given to franchisors from suppliers that were not passed onto franchisees.
He said rebates for things such as coffee beans were often introduced by franchisors who wanted to extract more value from the business, sometimes at the expense of franchisees.
“When a franchisee buys into something like a tyre franchise, they would expect good rates for tyres but then they find they can get them cheaper somewhere else,” he said. “That is when the relationship breaks down because one of the main advantages of franchising is that it is supposed to give you buying power.”
Mr Minus said lease arrangements were another source of friction, particularly in large shopping centres where the franchisor was the head lessee.
“The franchisor can make a determination not to renew the lease because it is too expensive,” he said. “That means the franchisee loses a business he may have built up over years.”
Committee chair Steve Irons told the inquiry that there may have to be a longer cooling off period to ensure franchisees investigated if a franchise was viable.
“I recently asked one franchisee how he got into a franchise because his own bank had not supported it,” said Mr Irons. “He said the franchisor has funded the purchase, which seems to me not to be an adequate commercial basis for the franchisee to buy a business.”
The committee will hold additional hearings in Sydney and Melbourne later this month before making a final report to Parliament by September 30.