The man appointed to settle disputes in the scandal-plagued $144 billion franchising industry admits many small operators in the sector don’t know he exists, and has called for a more powerful body to take his place.
Derek Minus, the government-appointed Franchising Mediation Adviser, told the first day of a parliamentary inquiry into the Franchising Code of Conduct that he could only provide mediation and that small businesses needed a dispute process that could issue binding determinations.
The inquiry is probing the code’s suitability amid allegations of unconscionable and deceptive behaviour by franchise companies, and follows revelations that sharp business models at Domino’s, Caltex, 7-Eleven and Retail Food Group were crushing franchisees, pushing many to underpay staff to stay above water and leading others to financial ruin.
“What’s really required … is determination by an expert, by an arbitrator, someone who can be more than just an umpire and actually investigate,” Mr Minus said.
“They can call for the records, they can see the prices that were paid, they can see the discounting and they can calculate what a fair outcome should be.”
Such a mechanism was included in the Food and Grocery Code on Conduct, he said, which was introduced in response to claims of supermarkets mistreating their suppliers.
Former franchisee Robert Whittet told the inquiry he regretted spending $5000 on mediation in a desperate attempt to reach a settlement with the cafe chain Jamaica Blue.
He bought one of its cafes in 2011, and was soon told by the company it was opening another store in his same area and that he could either buy it or lose out to another operator.
Mr Whittet said head office did not provide any of the support it had promised and within a year had sold the unprofitable first store, and put the second store into liquidation in April this year.
“We outlaid what we had left to try to go through the mediation process,” Mr Whittet said.
“After spending $5000, the other side got up and said, ‘We’re not doing anything, we’re too big, take us to court’.”
Pack & Send franchisee Maria Varkevisser told the hearing in Brisbane that she was preparing to spend her life savings on legal action against the company’s head, after the established dispute mechanism offered no resolution.
Ms Varkevisser told the inquiry she bought one of the courier and freight company’s franchises in a Brisbane in 2011, and alleged the company breached their agreement less than a year later when it started offering heavily discounted self-service products online to customers within her exclusive territory.
“The customers don’t understand why the online self-service price and the franchise retail centre pricing are vastly different,” Ms Varkevisser said.
“So for the last six years I’ve dealt with conflict, loss of income, loss of customers, negative business reviews on social media, unhappiness in the business environment and in my family life trying to manage two different business models.”
Ms Varkevisser said she went to the Office of the Franchising Mediation Adviser, but that did not settle the dispute, because it operated on the understanding that “nobody is right and nobody is wrong”.
She was preparing to take the dispute to the Australian Competition and Consumer Commission, but had been warned by her lawyers that the watchdog was “toothless” and unlikely to help her as an individual.
Ms Varkevisser had been the only franchisee on the Franchising Council of Australia’s Queensland committee, but quit because “there was nothing there for franchisees”, and was instead run in the interests of franchisors.
Pack & Send’s CEO Michael Paul said the company’s franchise agreement allowed it to “evolve and adapt our business model”. The company had not breached the agreement by introducing online services, which had improved franchisees’ profits, Mr Paul said.
There are more than 1000 franchise businesses operating in Australia, and the industry body, The Franchising Council of Australia, has characterised the scandals as a case a few bad apples.
Maddison Johnstone, from the mediation group Franchise Redress, told the hearing the true extent of problems in the industry would not be known until all valid complaints were investigated.
“If the [Franchising Council] didn’t know about the misconduct of 7-Eleven, Domino’s Pizza, Caltex and Retail Food Group until they were publicly exposed, then how can they say with such confidence that it’s only a small number of franchisors doing the wrong thing?”
Extracted from SMH