March 2018, the Australian Senate established a Joint Parliamentary Inquiry into the operation and effectiveness of
the Franchising Code of Conduct – with the report to be provided back to the
Australian Parliament by 30 September 2018.
Inquiry followed on from a previous inquiry that was conducted 10 years
earlier. This 2008 Inquiry concluded that while some Franchisors were “behaving
opportunistically”, issues associated with the Operation of the Franchise Code
were “relatively isolated”.
a significant part of the motivation for the conduct of the 2018 Review related
to suggestions that a significant part of the wage underpayment issue observed
in some franchise networks over recent years was due to insufficient financial
provision in franchise contracts.
final Report of the Committee was released on 14 March 2019, almost six months
behind the original reporting date set down by the Australian Senate. The six-month
delay in delivery of the report was deemed necessary due to the large number of
submissions that were received by the Committee – and the complexity of issues
Report contains a total of 72 recommendations – the first of which is a
recommendation for the establishment of an inter-agency Government Task Force (i.e. Franchising Task Force) to examine
the feasibility and implementation of a number of the Committee’s
Franchising Task Force would comprise representatives from the Department of
Treasury, the Department of Jobs and Small Business and (where appropriate) the
Australian Competition and Consumer Commission.
the recommended Task Force does not include any representation of industry and
nor does it discuss how the task force might consult with industry stakeholders
around implementation of the Committee’s recommendations”, said ACAPMA CEO Mark
Executive Summary of the report notes that, by contrast with the 2008 Inquiry,
the evidence provided in this latest inquiry indicated “that the problems,
including exploitation in certain franchise systems, are systemic” and their
resolution therefore “requires a much broader and more comprehensive approach.
result, the Committee is “proposing substantial changes to the Franchising Code
of Conduct (Franchising Code)” and “to the sections of the Oil Code of Conduct
(Oil Code) that relate to franchising, as well as to the responsibilities and
powers of the regulator”.
Report goes on to note that “Prior to this inquiry, the principal regulatory
response to issues in the franchising sector has been around improving
pre-contractual disclosure. During this inquiry, much was made of: firstly,
improving the awareness of prospective franchisees and ensuring that they have
access to appropriate legal and business advice prior to entering a contract;
and secondly, improving the accuracy and meaningfulness of the information
provided to prospective franchisees”
prevailing regulatory response operates on the assumption that if a prospective
franchisee is well-informed about the nature of the business and the
contractual obligations into which they are entering, the franchisee will be
suitably equipped to look after their own interests”, the Report says.
commentary in the report relates to the apparent imbalance of power between the
Franchisor and the Franchisee, noting that the past focus on franchisee
education and contract transparency does not, of itself, address these issues.
committee received a raft of evidence about how the abuse of contractual power
can manifest in a franchise agreement. Further, the committee also received
evidence that pointed to shortcomings in the current regulatory responses such
as the duty to act in good faith and the unfair contract terms provisions”, the
consequence, the Committee has recommended sweeping changes to the Franchise
Code (and the Oil Code) to address these issues”, said Mark
important to note that the Committee “acknowledges that many franchisors have
developed franchise systems that operate to the mutual benefit of the
franchisor and their franchisees”.
in developing its recommendations, the committee has been mindful to avoid
imposing unnecessary burdens on franchisors who treat franchisees fairly”, the
said, the recommendations are designed to lift standards and conduct across the
entire industry because, on the balance of evidence given to the committee in
public and in confidence, far too many franchisors are abusing the power
imbalance between themselves and their franchisees”, the Report says.
respect of the link between poor franchise arrangements and wage theft, the
Committee noted that “wage theft continues to occur in many franchises: partly
due to the business model franchisors operate and partly due to a range of
socio-cultural problems. At times, wage theft was occurring as a way for
franchisees to extract profits or service payments in order to stay afloat in a
financially constrained business model (given wages are one of the greatest
costs in the franchisee’s control)”.
what does this all mean for the fuel retail industry and the future operation
of the Oil Code Regulation in particular?
and foremost, the report highlights ongoing concern about wage theft within
franchise (including CA) networks which means that our industry must continue
to focus on eliminating this behaviour within our own industry”, said Mark
respect of contractual fairness, one of the recommendations of the Committee is
that penalties be introduced for civil breaches of both the Oil Code and the
Franchise Code and that the quantum of these penalties be substantially
increased so as to provide a meaningful deterrent (Recommendation 16.1) ”, said
second high-level recommendation (Recommendation 16.3) concerns aligning the Oil
Code with the recommended changes in the Franchise Code, which will give effect
to key changes in areas such as ongoing disclosure of obligations and current
dispute resolution processes.
report also recommends the merging the Office of the Franchising Mediation
Advisor with the Office of the Australian Small Business and Family Enterprise
Ombudsman (ASFBEO) to create a single body for the resolution of small business
and franchising disputes (Recommendation 15.1) – and that existing dispute
resolution procedures be enhanced by including the option of binding
arbitration of disputes (Recommendation 15.2).
all, the recommendations contained in the 370-page report are substantial and
will need to be carefully considered in terms of their potential for any
unintended consequences”, said Mark.
will now work with all stakeholders to better understand the implications of
these recommendations – and any subsequent adoption by the Australian
Government – and then provide this information to members as soon as it comes
of the report can be downloaded via the Australian Government website: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/Franchising/Report.