28 March 2019
The Fairness in Franchising Report (Report), published by the Parliamentary Joint Committee on Corporations and Financial Services (Committee) on 14 March 2019, unveils over 70 recommendations designed to level the playing field between franchisors and franchisees in Australia.
These recommendations include substantial reform to the Franchising Code of Conduct (Code) and the Competition and Consumer Act 2010(Cth) (Act).
The Report also recommends providing the ACCC with greater investigative and enforcement powers.
Set out below is a snapshot of some of the key recommendations in relation to Code amendments, as well as civil penalties, unfair contract terms and powers of the ACCC.
1. Mandatory disclosure obligations for franchisors
The Committee recommends that the Government impose more onerous disclosure requirements on franchisors, including (amongst others):
The Report recognised that the reference to a ‘marketing fund’ in clause 15 of the Code and ‘marketing and advertising fees’ in clause 31 created a loophole for franchisors to avoid the obligations under clause 15, by claiming that they did not operate a ‘marketing fund’ as such.
The Committee recommends amending the language of clauses 15 and 31 to make clear that each clause applies where a franchise is required to make regular payments to franchisors to cover marketing fees. The Committee also recommends that clause 31 be amended to provide for civil penalties for breach, but does not specify what those penalties are.
2. Termination rights
Additional termination rights for franchisees under the franchise agreement are proposed where:
3. Cooling off period
The Committee recommends amending clause 26 of the Code to clarify that a franchisee may terminate a franchise agreement and any associated arrangements (including leases) up until 14 days after the last of the following have occurred:
4. Collective bargaining and dispute resolution
In seeking to enhance the collective powers of franchisee groups, the Committee recommended the Government establish a dedicated franchisee industry association and allow franchisees to collectively bargain with their franchisors.
With dispute resolution, the compulsory dispute resolution scheme under the Code would be retained with an option for binding arbitration to be included.
5. Increased civil penalties for breaches of Franchising Code
The current penalty for a breach of the Code is capped at 300 penalty units (or $63,000). In the Committee’s view, this penalty is too low, and is often treated as a cost of doing business.
As a result, the Committee made three key recommendations:
6. Unfair contract terms
The Committee also recommended the Government consider changes to the unfair contract terms provisions of the ACL, including, amongst others:
Currently, the ACCC cannot seek penalties when a contract term is declared unfair, or issue infringement notices where a term is likely to be unfair. The Committee did not give detail as to the quantum of penalties it recommends.
7. New powers for the ACCC
The Report condemned the practice of ‘churning and burning’ – ‘churning’ being the perpetual sale of a single, underperforming franchise and ‘burning’ being the opening of unviable new outlets to profit from upfront fees.
To overcome systemic ‘churning and burning’ in franchising, the Committee recommended that the ACCC be provided with power to intervene and prevent the marketing and sale of franchises where a franchisor shows a track record of the practice.
The Government, which has yet to comment on the Report, has been urged by the Committee to act quickly and to establish a ‘Franchising Taskforce’ to investigate how to best implement a number of its recommendations.
The Report no doubt comes as a warning to big players in Australia’s franchising industry, with the Committee recommending various government agencies conduct investigations into Retail Food Group for a number of different breaches.
The report canvasses a complete sector overhaul and franchisors should keep an eye on regulatory movements in 2019.
The full list of recommendations can be found in the report here.
 Recommendation 6.3.
 Recommendation 6.7; 6.9.
 Recommendation 6.8.
 Recommendation 7.1
 Recommendation 8.1.
 Recommendation 11.1.
 Recommendation 10.2.
 Recommendation 15.2.
 Recommendation 16.1.
 Recommendation 9.1.
 Recommendation 4.1.
The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.