Franchise crackdown following damning Senate report

Thomas Stelzer 15 March 2019 NEWS

The report makes 71 recommendations to help curb bad behaviour.

A Senate inquiry into the operation and effectiveness of the Franchising Code of Conduct has called for a serious and immediate overhaul of the franchise sector to eradicate exploitative behaviour and improve accountability, according to its report which was finally released today.

The report, which had already been delayed four times, made 71 recommendations overall, and also called for the creation of a franchise taskforce to oversee the proposed changes. It also suggested the ACCC be given more power to police behaviour in the franchise sector, despite criticising the regulator, as well as ASIC, for past failures to act.

While the committee was damning in its report, many of its recommendations are subject to the creation of the taskforce, which would need to be established by the government.

The major findings

Among these recommendations is the introduction of a public franchise register to hold disclosure agreements and template franchise agreements in an attempt to add transparency to the relationship between franchisors and franchisees.

Franchise fee misuse

A major focus was on the use of franchise fees, which are paid to the franchisor to ostensibly cover marketing and advertising. Following allegations that franchisors, including the Retail Food Group, were using the fees to pay for other things, the report recommends the code of conduct be overhauled to introduce civil penalties for franchisors who have been found to misuse funds, as well as give franchisees access to bank statements to ensure the money is being spent correctly.

Retail leases

The report also recommended that franchisees be given copies of lease disclosure documents and final lease agreements before they signed up for a franchise. Some franchisees had reported being caught unaware of their lease obligations before becoming a franchisee, and the committee also suggested whether the taskforce should make franchisors hold lease money in a trust to make sure it is used for its intended purpose.

Dispute resolution

With many well-publicised court battles between franchisees and franchisors, the committee targeted an overhaul of the current dispute resolution processes. This would include an option for binding arbitration, and the potential merger of the Office of the Franchising Mediation Adviser with the Australian Small Business and Family Enterprise Ombudsman.

In an effort to address reports of franchisors using court action to intimidate franchisees, the report recommends that franchisors be forced to prove their disputes cannot be resolved through mediation before pursuing other legal avenues.

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