ACCI flags unintended consequences with franchising code changes
The Australian Chamber of Commerce and Industry has broadly welcomed the draft legislation but is concerned about aspects of the changes.
Draft legislation to introduce changes to the Franchising Code of Conduct has been supported by the Australian Chamber of Commerce and Industry but issues remain with the proposed changes.
ACCI said it welcomed the fact the Franchising Code would be remade rather than substantively overhauled as this would ensure continuity.
"The Code's continuation in a comparable format is essential for upholding accountability and transparency within the franchise sector, as well as providing support to both current and aspiring franchisees in their business endeavours," ACCI said.
ACCI said the remade code streamlines some of the red tape burden for existing franchisees taking on a new franchise by allowing them to opt out of the cooling-off period and simplifying disclosure obligations such as receiving disclosure documentation.
"This will be advantageous to both franchisors and franchisees, cutting through unnecessary bureaucracy and allowing both parties to move forward more efficiently with their exchange."
The ACCI has also welcomed changes to implement five-yearly reviews that would ensure the code maintains relevance and adapts to sectoral changes.
However, there are a number of areas where the body has concerns with the proposed remade Franchising Code of Conduct.
The submission noted that the exposure draft shifted the protections in part 5 of the Franchising Code of Conduct, which safeguards new vehicle dealerships, to part 4, thereby applying them to all franchisee agreements.
The key changes include mandating a reasonable opportunity for return on investment and requiring compensation for early termination.
ACCI said while the draft specifies that these measures do not guarantee profitability, it establishes expectations for the alignment of franchise terms with capital investment requirements.
Additionally, franchisors will be obliged to compensate for a broader range of items if they terminate agreements early, including unsold stock and branded materials that cannot be reused.
The body said while it welcomes the intent to protect franchisees, it urged the government to consider the potential unintended consequences.
"It is possible that broadening these protections might make franchisors more hesitant to engage with new franchisees, potentially limiting opportunities for smaller operators seeking a pathway into business ownership," it said.
In addition, ACCI said while it welcomes reforms to give ASBFEO the authority to publicise the names of franchisors who do not engage in ADR processes in good faith, it warned that this does not adequately address unethical behaviour by franchisors.
"While this step promotes transparency and accountability, we do hold some concerns that it does not adequately account for retributive behaviour from the small minority of unethical franchisors, or pay enough attention to other areas where the franchisor may deliberately inconvenience the franchisee," the submission warned.
ACCI has also urged the government to remove the thresholds for unfair contract terms (UCT) protections entirely.
The UCT regime currently applies to franchisees that fall below certain thresholds including businesses with fewer than 100 employees or an annual turnover below $10 million.
"While raising the number of small and medium businesses to which these protections apply is a positive step, we maintain our concern that these thresholds will create uncertainty for businesses on the cusp of the thresholds," the submission said.
"For example, a large franchise (such as a McDonalds franchise) may employ close to 100 staff during slow months, during which time they are protected by the UCT Regime, but bring on surge staffing during busy periods, taking them over the threshold of 100 employees and causing them to lose those protections.
"This seems arbitrary and unfair. This will apply regardless of the specific threshold, which is why ACCI has advocated for the removal of all thresholds. Eliminating thresholds would ensure consistent protections for all franchise agreements, regardless of business size."
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