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Stronger protections urged for small businesses in franchising

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has warmly welcomed the release of Dr Michael Schaper’s review of the Franchising Code of Conduct, praising its recommendations for strengthening protections for small businesses in the franchising sector. 

The ongoing review will look closely at how rules are made and deal with big problems in five main areas: what the rules cover, things to think about before signing a franchise deal, what franchise owners have to keep doing, how franchise deals end, and how to handle fights and problems.

Reviewing the Franchising Landscape

Since 2020, the Franchising Code added more protections for franchise owners who sell new vehicles, which are talked about in those five areas if they matter. But the review also wants to hear about other issues not listed in the review papers.

People are asked to share their thoughts on how well the Franchising Code works, since it might stop working on April 1, 2025, if it’s not renewed. The review also wants to hear about new trends like technology, society changes, and how they might change the franchise world. The review asks some questions to help people talk about these topics, but they don’t have to answer them all. It’s just to give them some ideas. People are also asked to share stories about problems they’ve had and how they think they could be fixed.

The franchise sector is worth $135 billion and employs more than half a million people. There are some 70,700 franchisees in Australia and almost all of them are small businesses, as are many franchisors.

The Ombudsman performs a range of functions under the Franchise Code to support informed decision making, healthy franchise relationships and the resolution of disputes that may arise throughout the course of the franchising relationship. “Dr Schaper has produced a well-researched and thoughtful report for the Australian Government and we support the report and the majority of his sensible recommendations to strengthen the Franchising Code and regulatory landscape for small and family businesses,” Mr Billson said.

Several of the recommendations involve the office of the Ombudsman, and Mr Billson said he would enthusiastically work with the Government and officials to explore the expanded educative role the recommendations envisage.

“We support the recommendation for a clear statement of purpose to be inserted into the Code to explicitly state why it exists and what it seeks to achieve,” Mr Billson said. Similarly, we back changes that would also provide a clear statement to prospective franchisees that while purchasing a franchise provides an opportunity to make a reasonable return, it does not guarantee a fixed rate of return. The statement would also outline other terms of their arrangement, so they have quality information to make an informed decision.”

Supporting this, Dr Schaper recommends ASBFEO, the ACCC and other agencies develop best practice guides to improve standards of conduct in franchising. “We are willing to assist with the drafting of the objective of the code, helping explain what the benefits and risks are and to explicitly include the duties of parties under the code,” Mr Billson said. This is an opportunity to promote good behaviour and shared success and encourage exemplar and best practice. Almost 10 per cent of the business disputes where we provide case management involve franchising.  We have valuable insights on the points of difference and tensions that can lead to conflict between and franchisor and franchisees. We also play an important role in helping parties navigate the complexities that come with dispute resolution, including helping them gain access to Alternative Dispute Resolution processes, such as mediation and conciliation.”

Dr Schaper also recommends expanding ASBFEO’s powers to name franchisors who have not participated meaningfully in alternative dispute resolution. “At present we can only use this power under our Act as it relates to general business disputes, rather than as part of obligations under the Code. These additional powers should apply to franchisees as well as franchisors,” the Ombudsman said.

Dr Schaper says the Government should also investigate the feasibility of introducing a licensing regime to better regulate most aspects of the franchisee-franchisor relationship. 

“We think the Government should analyse the costs and benefits of introducing a licensing regime to regulate the franchisee-franchisor relationship – noting that Australia’s franchising system is already highly regulated and the vast majority of franchise parties on both sides of the relationship are small, less well-resourced businesses,” Mr Billson said. “In exploring whether there are advantages in introducing a licence system, it will be important to examine why existing safeguards and better franchising practice Code expectations are not always implemented. Lamentably, in many cases, not enough use is being made of existing powers to take action. Small and family businesses are not easily able to enforce protections under the Franchising Code and hope and rely on the regulator to take action where they feel they have been infringed upon. 

“We encourage the Government to consider how a revised Code could be more effectively enforced.We have proposed the introduction a Federal Small Business and Codes List into the Federal Circuit and Family Court of Australia, to provide small businesses with an affordable and timely means of enforcing their legal rights.”

Franchising Code of Conduct 

Dr Michael Schaper has provided 23 formal recommendations and 34 implementation suggestions for the Government’s consideration. The franchising sector plays a significant role in the Australian economy, employing over 500,000 Australians. While the review suggests that the Franchising Code of Conduct is generally effective, it also highlights areas for improvement. Additionally, the review proposes broader changes to franchising regulation, including exploring the possibility of implementing a licensing scheme. Over 1700 franchise entities were invited to participate in the review’s consultation process, resulting in 95 formal submissions, over 40 meetings and roundtables, and 544 responses across two surveys.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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