REBUILDING FRANCHISE CONFIDENCE
This is the FCA’s final submission to the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the operation and effectiveness of the Franchising Code of Conduct, September 2018.
The FCA submission to the parliamentary inquiry.
The Franchise Council of Australia has been following the submissions and testimony with interest, and acknowledges the constructive efforts invested throughout this process to improve the sector.
It is essential that the Australian community have confidence in the franchising sector. That confidence has been damaged in recent times and needs to be rebuilt through meaningful and transparent steps.
The FCA is not prepared to excuse incidences of poor behaviour or standards. Allegations of wrongdoing should be properly investigated in a timely manner, and if proven, dealt with accordingly.
The Franchise Council of Australia is not a regulatory body or watchdog. We have a set of member standards that our members agree to abide by but we cannot apply legal penalties for wrongdoing. That role rightly sits with the regulator.
We do seek to work with our members and the broader sector to drive compliance, best practice standards and education. We provide our members with information about their compliance obligations, emerging regulatory issues, and access to education resources, as well as our broader policy and advocacy work. Some of the franchise businesses that have appeared to before this inquiry to answer questions are members of the FCA. A number of others are not members. Nonetheless, they are all franchise businesses and any incidence of wrongdoing, proven or indeed disproven, tarnishes the entire sector.
A number of the stories that have emerged through this inquiry are sad and disappointing. Some of them highlight simply inexcusable behaviour.
This inquiry is different to other franchising inquiries for a number of reasons:
• It has occurred quite close to a previous inquiry from 2013, and in the context of a regulatory framework that has been comprehensively reviewed.
• The regulatory framework is consistent with others around the world, and seen by many as structurally world’s best practice.
• Despite these facts, it remains that there is clearly an unacceptable level of behaviour in the sector. This is probably the biggest crisis in confidence in franchising the sector has ever seen.
The two most significant questions that should be asked are what has gone wrong, and where do we go from here to repair these problems?
Today, we wish to give you our thoughts on those key questions, along with our perspective on how to best do that.
We have listened carefully to the stories and testimony that have been provided to this inquiry. We have read the submissions and followed closely the questions asked and the answers given. There have been constructive and thoughtful ideas put forward, and through tabling a supplementary submission the FCA would like to provide our response to these issues, provided as late as last week’s hearing, for your consideration.
We have identified a number of key themes distilled from various submissions to the inquiry, and commented upon them in our Supplementary Submission. In this opening statement we would like to pick just a few, which we see as being the most critical:
• The submissions feature an unacceptable number of allegations of conduct that are a breach of the current law. That is intolerable, and those franchisors need to be held to account. • The current compliance and enforcement regime is breaking down – franchisees and the public are entitled to expect that existing laws will be effectively policed and consequences will flow from any breaches. The ACCC needs to be more proactive and not solely reliant on a complaint-activated process. There seem to be gaps between the expectations of the public and franchisees, and the actions of regulators and agencies such as the ACCC, SBFEO, OFMA, state Small Business Commissioners.
• Far too many franchisees are not obtaining legal and business advice, undermining the duality of obligation that underpins the Franchising Code – responsible franchisor behaviour, and franchisee due diligence. The FCA believes it is time to make obtaining legal and business advice mandatory, subject to very limited exceptions (low value deals, existing franchisees, sophisticated investor etc.).
• Although most complaints have been framed as franchising complaints the real underlying issues are often industry issues – motor vehicle industry, retail food businesses in major shopping centres, convenience stores etc. Of those the biggest concern to the FCA is the conduct of major shopping centre proprietors – anti-competitive conduct in their controlled markets, and end of term lease negotiations being the most critical. We have some specific recommendations: • Mandatory legal and business advice. • The introduction of a mandatory registration requirement, administered and funded largely by the franchise sector but augmented by relatively simple enabling amendments to the Franchising Code and dovetailed into existing ACCC enforcement activities.
• Refinement of the ACCC’s compliance checking processes and enforcement actions to be more proactive and effective.
• Consideration of reinstating a simplified
form of franchisee to franchisee disclosure. • Support of some (but not all) of the
amendments requested by the ACCC. • Improving the effectiveness of the Code’s
dispute resolution mechanisms. • Translation of the Information Statement
into multiple languages.
• Review and enhancement of pre-entry educational content, with a focus on broader business skills and the needs of new entrants to Australia.
• Compilation of an Australia-wide list of franchising lawyers and advisors to better facilitate legal and business advice, together with support materials to improve the quality of advice.
There have been serious issues raised in this inquiry, and they deserve a serious response. The FCA is committed to improving standards and behaviour in the sector and driving a focus on education and compliance. Franchising is a major employer and contributor to economic activity in Australia. The sector employs over half a million people.
There has to be a future for franchising in Australia, and that future must provide a secure and confident sector to invest in, and be identified as an employer of choice.
MARY ALDREDCEO, Franchise Council of Australia