The future for franchises

These are changing times for franchisees and franchisors in terms of regulations. This expert advice will help you understand the potential changes.

Franchise ShopperA number of changes are being made to the Franchising Code of Conduct and the Trade Practices Act and these were announced at the end of last year. Here I’ve highlighted the main areas to be aware of and my thoughts on them as boss of the Chooks franchise.

1. The introduction of fines and penalties for unconscionable conduct and false and misleading representations.

I believe that this is an area where we all need to be accountable; however whether fines will actually assist in this area is debatable.

2. Random audits of franchise systems to be conducted by the Australian Competition and Consumer Commission (ACCC).

Random audits should be welcomed by all systems, as the Code has done a very good job to date. Those in franchising who have understood and embraced the provisions would not (or should not) be worried about any audit, in the same fashion as any franchisee should not be worried about an audit by the franchisor given that they are complying with the provisions of their agreements and the system.

3. Public warnings about rogue franchisors.

Public warnings about rogue franchisors/systems should also be welcomed, however franchising in general should not be labeled or be seen in a bad light because of negative PR.

4. In acknowledgement (but not specific legislation) of good faith in relation to franchise agreements.

Good faith is something that can never be legislated for and this provision is something that has been driven by a private agenda. There is no way that this type of provision would ever gain any momentum in applying the same rules to leasing. The fact is that a franchise is essentially a right and a privilege to the relationship, essentially when one rents the name, the system and the intellectual property of a system for a specific period of time for a fee and for an ongoing royalty.

5. A requirement to clarify end of term arrangements, including a six-month mandatory period of notice of renewal.

This is something that is implied in every franchise agreement, however sometimes lawyers and some franchisors do not bother to explain how it works from the outset. In my work with CHOOKS fresh & tasty, in my introductory briefing to franchisees, I explain image upgrades, what happens if one wants to sell, when businesses actually do sell, how the franchise fee is or should be calculated and when to negotiate the end of term, in order to protect the goodwill of both parties, and how to value their business at any point along the way. We advise our franchisees that the time to renegotiate the term is 12 months prior to the end.

6. Provision to include all affected franchisees of a group in ACCC actions.

In theory, this means franchisees who are wronged can seek legal reparation without an enormous cost. Similar cases could benefit from a group action, however the grouping of any action in most cases may not be effective because each franchisee would have a very different situation.

7. The creation of an expert panel to advise on inappropriate franchising behaviours to be covered by the Code.

This could be of assistance to the industry, however it is always dependent on the criteria set for the panel members. In many cases, these panels may have academics and consultants with little industry experience and whether it actually works or not does not become the issue, it seems that it is just set up to satisfy what was requested politically. If the members are not in touch with the realities of franchising, their recommendations may have little or no relevance to what really happens day-to-day in franchising. The success of the panel, in the eyes of the franchising community, will depend on the recommendations it makes.

Business in focus

As the founder and ‘chief chook’ of fast food retail franchise CHOOKS fresh & tasty, I believe formalising the standards can only develop franchising further. Any changes that are made with good intention for the benefit of all parties is a win-win situation.

If franchising is held to higher official standards through regulations, then that can only build the confidence of potential franchisees. It is important to note that the proposed changes do not alter the framework of franchising, which is a proven method of doing business, which works extremely well and has done so for many years. I believe it will merely hold franchisors and franchisees to the standards most already hold themselves to.

Where to now?

The panel was due to make its recommendations to the Government by late January. At the time of writing, no announcement had been made about the panel’s recommendations. An announcement is expected within a few months, according to Government sources. The changes to regulations in the Code announced in November by Minister Craig Emerson are currently being drafted. Until any changes are actually completed, it is impossible to give a final verdict, but from the work so far, it seems the anticipated changes should be a positive development for the franchise community.

The regulator, the ACCC, is a good source of information for those in the franchising community. You can subscribe to franchising updates on their website: www.accc.gov.au. Griffith Uni in conjunction with the ACCC is also running a free online course for potential franchisees starting this July.

Steve Hansen is the founder and ‘chief chook’ of retail franchise group CHOOKS fresh & tasty and the immediate past president of the WA chapter of the Franchise Council of Australia.

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