Franchising – Balancing Regulation to Create a Thriving Industry to Benefit All!
The Federal Franchising Inquiry is now in full swing, having received various written submissions on their points of reference for the inquiry, with various members of its committee now travelling around certain parts of Australia listening to parties from all different sectors, including other government bodies, franchisors, franchisees, suppliers, academics and various associations.
One of the many debates that is arguably taking place during these hearings is what is the right balance of regulation that seeks to stop exploitive behaviour, provide relevant protections, but at the same not create red tape overload within the franchising industry so as to unnecessarily increase costs and stop growth in what is arguably an important growing economic sector within Australia that provides opportunities to various people that may otherwise not be available.
Regulations not only affect franchisors and franchisees, but also their employees, suppliers and the end consumers, as well as many of the charities and groups who many franchisors and franchisees support.
Unfortunately however, there have been some franchisor behaviours that have materially damaged the reputation of the franchising sector, and as such, show that there is a need for strong regulation and its enforcement.
Saying this, any regulation and its consequent enforcement needs to take into account the practical reality of franchising, that there is not one universal model and the unintentional collateral impact a decision here can have.
Franchise systems greatly vary in their formats, sizes, and investments requirements. From part time to full time business models; mobile, home office and/or fixed site premises operations; fixed and/or flat fee structures; one person operators to multiple employees. Additionally, for some franchise systems you can even see some multi franchisees and/or master franchisees who are arguably more powerful than the franchisor.
Rather than again seeking to effectively reinvent the wheel, we suggest consideration be given to how can we improve the industry, keeping in mind the goals to stop any exploitive behaviour, provide relevant protections to while allowing the franchising industry to grow in a positive manner.
There is already substantial regulation within Australia. What may need to be considered is whether the regulation is relevant in practice not just theory, its ability to be enforced (this includes ensuring ACCC have adequate resources to enforce) and how clearly is this regulation drafted to reduce potential confusion and instead create greater understanding and consequently compliance.
While the Federal Franchising Inquiry continues, it is again a timely reminder to those in the franchising sector to ensure that they are fully aware of and meeting their existing obligations. Furthermore, for Franchisors not only should they meet their obligations and be able to easily prove such if called upon, but they should seek to create and be externally seen as having a culture that fosters compliance. While for franchisees, its a good idea to understand your current rights and when to take steps to ensure your rights are being respected.
Please note this brief update, does not purport to be comprehensive advice relevant to your circumstances. Consequently specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.