Consistent with its pre-election campaign promise, the Coalition
Government has announced that this year it will review and amend
the Franchising Code of Conduct (Code) to improve protections for
small business franchisees. It will implement some recommendations
made in the 2013 Wein review and amendments may include the
introduction of penalties of up to $50,000. If successful, this
will be the first time that penalties have been introduced into the
compulsory industry code.
reported last year, the Code was recently subject to a major
review (the 2013 Wein review) and the previous Federal Labor
Government subsequently released a response to the review,
accepting in full or in principle the majority of the
recommendations made. However, due to the timing of the 2013
election, the proposed changes were never legislated. The current
Government is now eager to introduce a number of changes to the
Code to assist franchisees who frequently complain of a significant
imbalance of power in their relationships with franchisors.
Key issues and changes
Small Business Minister Bruce Billson has cited the following as
key issues to address in franchising regulation:
the need for a nationally consistent regulatory framework to
prevent franchisees from "jurisdiction shopping" and to
avoid state-based regulatory remedies (of specific concern to the
Government are the plans of the South Australian Government to
offer greater protections to franchisees);
the lack of resources for dispute resolution between
franchisees and franchisors;
the power imbalance between small business franchisees and
franchisors, along with the need for stronger legal protection for
the level of red-tape currently existing in the industry.
It is expected that there will be amendments in the areas listed
above in addition to the major potential change which is the
introduction of fines for breaches of the Code. The Minister has
suggested potential fines of up to $50,000 may be imposed for
"serious but less egregious" breaches, while other major
fines would be imposed for "egregious" breaches.
The Government has also confirmed that it intends to extend
unfair contract protections to small businesses which will affect
the franchise sector as well.
Consequences for business
The changes that are likely to be introduced by the Government
will mean that franchisors will need to be more diligent in their
management practices and their relationship with their franchisees
to avoid these penalties. Nevertheless, if the approach to
franchise regulation becomes more nationally consistent across the
states, there will be a major benefit to franchisors.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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