MST Lawyers’ Overview of The Fairness in Franchising Report
By John Sier, Principal, MST Lawyers
The Parliamentary Joint Committee on Corporations and Financial Services on 14 March released its long-awaited report into Franchising.
Titled The Fairness in Franchising Report the committee members have made some 71 recommendations with the central themes being the need for transparency and accountability of franchisors, fairness and protection of franchisees and education and awareness for all in the sector.
80% of the submissions were from Franchisees, and so the power imbalances in the franchisor-franchisee relationship were a central theme. Many of the recommendations seek to rebalance the relationship.
Below is a summary of some of the key recommendations:
- Establishing a Franchising Taskforce with representation from various government departments including the ACCC to examine the feasibility and implementation of a number of the recommendations
- Encourage a national association of Franchisees
- Additional disclosure around earnings on transfers (2 years BAS), marketing funds and supplier rebates(with specific focus by ACCC on conflicts of interest
- Whistleblower protections extend to franchisees
- Unfair contract terms in franchise agreements to be made illegal with the application of civil penalties. ACCC to be given added resources to investigate.
- Cooling Off period extended to 14 days after signing
- Termination rights extend to Franchisees in certain limited circumstances such as:
- franchisor liquidation; or
- if a certain level of profitability is not achieved; or
- within six months of taking occupation if the franchisor has not complied with lease disclosure requirements
- Protection with potential for compensation where the franchisee incurs significant capital expenditure near the end of term
- Class exemption allowing Franchisees to bargain and resolve disputes collectively
- Dispute resolution to allow for binding arbitration and the code be amended to enable multi franchisee resolutions when disputes relate to similar issues
- Alignment of Industry Codes
- Civil pecuniary penalty and infringement notices to apply for all breaches of the Franchising and Oil codes
- Registration of Disclosure Documents and Franchise agreements on a searchable database updated annually
- ACCC be empowered to prevent churning by franchisors in certain circumstances
- Franchise Documentation to be provided in both electronic and hard copy form
- Auditing Assurance Standards Board to provide audit guidance for Marketing Fund audits
- Pecuniary penalties to apply where franchisors fail to provide information as required by ACCC (s51ADD)
- Unilateral variations only with the agreement of a majority of franchisees
- The Taskforce will consider Code amendment for end of term arrangements for franchisee goodwill
- Disclosure to include ACCC franchisee manual
- Disclosure to include an estimate of the personal workload to be undertaken by a franchisee operating the business
The report is some 326 pages, and so we intend to organise some client specific round table discussion sessions to help answer specific questions around the Report. We believe franchisors should now consider whether their business model needs adjustment to reflect the potential impact of the proposals and best practice generally. The requirement for majority franchisee support for unilateral changes to the model is best considered in advance of the Report’s implementation.
As the Government will soon go into caretaker mode and given the Franchising Taskforce needs to be established to consider the recommendations and implementation strategies we do not envisage changes impacting until mid 2020 at the earliest.