Collective bargaining to be permitted by Class Exemption for small businesses, franchisees and fuel retailers

By Louise Wolf, Senior Associate, MST Lawyers

Collective bargaining occurs when two or more businesses work together as a group to negotiate with a customer or a supplier about terms and conditions or prices. 

Collective bargaining can breach the Competition and Consumer Act 2010 (“the Act”) when it involves competitors acting in concert to make decisions about, for example, pricing, which businesses to deal with and the terms and conditions on which to do business.  Penalties for breaches of the Act are significant.

There are many benefits of collective bargaining, particularly for a group of small businesses (including franchisees) working together to negotiate with a larger entity, which include being able to negotiate better terms and conditions and create efficiencies that they may have been unable to negotiate on their own.  It can also be beneficial for suppliers and franchisors by saving time and cost by negotiating with a group rather than with each customer or franchisee individually. 

Until now, the only way for small businesses to obtain legal protection to engage in collective bargaining under the Act was to lodge a notification or obtain authorisation from the ACCC.  The ACCC would allow notifications and grant the authorisations in circumstances where the public benefits of collective bargaining outweighed the possible public detriment.

However, the ACCC has recognised that the lodgement of a notification or obtaining an authorisation is not suitable for all situations and may be prohibitive from a cost perspective, especially for small businesses.

Since November 2017, the ACCC has had the power to make class exemptions for certain types of conduct by businesses.

It has taken some time, but the ACCC has announced for the first time in October 2020, that they will make a class exemption for small businesses, franchisees and fuel retailers.  This will allow them to negotiate as a group with their suppliers/processors, franchisor or fuel wholesaler respectively without having to lodge a notification or seek authorisation from the ACCC.

Businesses and independent contractors who are or form part of a bargaining group, where the members of the group each have an aggregated turnover of less than $10 million in the financial year before the group was formed, will fall within the class exemption.

The class exemption will also apply to all franchisees and fuel retailers, allowing them to negotiate with their franchisor, regardless of their aggregated turnover.

For groups to avail themselves of the class exemption, they will be required to complete and submit a simple, one-page form to the ACCC.  There will be no fee to lodge the form.  Legal protection will commence automatically.

Suppliers and franchisors are not required to negotiate with the group.  They may decide to negotiate with each member of the group separately.  The notification and authorisation process will remain in place for all businesses that do not fall within the class exemption.

Some administrative steps must be taken before the class exemption comes into operation.  First, the legislative instrument and an explanatory statement must be lodged with the Office of Parliamentary Counsel for registration on the Federal Register of Legislation.  The instrument must then be tabled in Parliament within 6 sitting days after registration, following which there is a disallowance period of 15 sitting days.  A commencement date will be set by the ACCC after the disallowance period has passed.  It is not known when this will occur yet, because Parliamentary sitting dates for 2021 have not yet been finalised, but it is likely to be somewhere between February and May 2021.

This development goes some way towards redressing the power imbalance between franchisees and franchisors, identified by the Parliamentary Inquiry into the effectiveness of the Franchising Code of Conduct, by making it easier for franchisees to work together to negotiate with franchisors.  Some will argue it does not go far enough, because franchisors may refuse to deal with a group of franchisees.  However, it certainly creates the opportunity for both franchisees and franchisors to save time and money by negotiating issues once with a group, rather than multiple times with individual franchisees.  It will also be interesting to see how groups of franchisees (who each have aggregate turnover under $10 million) come together to negotiate directly with their suppliers and whether that will affect franchisors’ ability to obtain rebates in the future.

Anyone with queries relating to the class exemption can email MST’s franchising team.