Minister Emerson's response to the federal franchising recommendations made by a Parliamentary Committee chaired by Bernie Ripoll falls well short of what's needed to clean out the rogue franchisors that prey on vulnerable franchisees, writes consumer advocate, Frank Zumbo.
The federal franchising recommendations had bi-partisan political support and should have been fully implemented by the Minister. Minister Emerson has missed a golden opportunity to put an end to the rogue franchisors giving the whole sector a bad name.Minister Emerson response to those recommendations are big on rhetoric and short on details. The Minister is only tinkering around the edges and has failed to deal with the central problems facing the Australian franchising sector.
The Minister's failure to implement the two key recommendations relating to good faith and pecuniary penalties for breaches of the Franchising Code will allow rogue franchisors to continue to get away with unethical and unscrupulous behaviour that is causing so much pain and loss to franchisees, while giving the franchising sector a bad name.
The Minister has failed to implement a statutory duty of good faith as recommended by the Ripoll Committee.
Good faith is a well understood concept accepted by Australian Courts requiring franchising participants to act honest, reasonably and cooperatively with one another.
Good faith is integral to good franchising and it's disappointing that the Minister has failed to recognise the link.
All that Minister Emerson needed to do is to amend the Franchising Code to say that "the common law requirement of good faith applies in relation to franchising agreements covered by the Code" or "nothing in the franchise agreement limits any common law requirement in relation to a franchise agreement covered by the Code.
"Instead, Minister Emerson will establish another Inquiry to make recommendations about possible specific franchising "behaviours" that may be considered to be inappropriate.
This approach is highly prescriptive and will create uncertainty for the sector as any "behaviour" to be outlawed will need to be carefully defined to avoid unintended consequences.
Establishing another Inquiry to go over the same ground that 3 previous Inquiries have covered is a waste of time and money and represents another unnecessary delay costing the sector dearly. Sadly, the Minister's delay will play into the hands of rogue franchisors.
The sector has had enough inquiries. The problems facing the sector have been clearly identified by the 3 previous Inquiries and its time the Minister showed much needed leadership on the issue rather than flick the ball back to another Inquiry - this time an "expert panel.
"The Minister's failure to impose pecuniary penalties for breaches of the Franchising Code will also give rogue franchisors the green light to continue breaching aspects of the Code.
There is growing non-compliance with important aspects of the Franchising Code and the Minister should have sent a strong signal to the rogue franchisors that breaches of the Code will not be tolerated.
The Minister has also failed to include a statutory definition of unconscionable conduct in the Trade Practices Act. The laws against unconscionable are next to useless as the Courts have given those laws an extremely narrow interpretation.
The courts are taking such a narrow approach to the concept of unconscionable conduct that a clear statutory definition of the concept is urgently needed.
Minister Emerson could have resuscitated the unconscionable conduct laws for the benefit of franchisees who are victims of rogue franchisors, but again the Minister has flicked the ball to another Inquiry Even the Minister's intention to give the ACCC the power to conduct "random audits" under the Franchising Code is window dressing as the ACCC already has considerable information gathering powers.
The problem is not a lack of ACCC powers, but rather an ongoing failure by the ACCC to use the existing powers to prosecute the growing number of rogue franchisors in the sector.
Providing some clarity on "end of term" issues is small step in the right direction, but the Minister has failed to address the wider issues associated with termination and insolvency situations.
Again, franchisees and the franchising sector as a whole lose out as a result.Frank Zumbo is an Associate Professor within the School of Business Law and Taxation at the University of New South Wales.