Franchising Update: Parliamentary Joint Committee Report on Franchising
In June 2008, the Parliamentary Joint Committee on Corporations and Financial Services commenced an inquiry into whether any amendments should be made to the Franchising Code of Conduct (the "Code") in order to raise the standard of conduct of participants in Australia's growing franchising sector.
The major theme of the Committee's report was how to best deal with so-called "rogue" franchisors that have been reported to have opportunistically dealt with franchisees, particular in relation to unfairly terminating or failing to renew franchise agreements or in negotiating resolution of disputes. Somewhat controversially, it was felt that the best method of preventing or limiting this behaviour would be through the introduction a new obligation into the Code requiring franchisors, franchisees and prospective franchisees to act in good faith.
Other recommendations included:
- that the disclosure requirements of the Code be amended so that franchisees are offered a clearer understanding of what will happen when the franchise relationship comes to an end;
- that the government develop a simple online registration system for Australian franchisors, with each franchisor required each to lodge an annual statement that they are meeting the requirements of the Code and the Trade Practices Act (TPA) and to report on the extent of their franchise network;
- that the Trade Practices Act 1974 (TPA) include pecuniary penalties for breaches of the Code or of the misleading and deceptive conduct and unconscionable conduct prohibitions of the TPA; and
- that the ACCC should be given the power to investigate parties thought to be engaging in conduct contrary to the Code.
It is clear form the report that the Committee's primary concern was creating the right balance between the rights and obligations of franchisors and those of franchisees.
This concern was borne out in the recommendations made by the Committee, which should go some way to protecting franchisees from opportunistic behaviour by rogue franchisors without being too burdensome for the majority of franchisors who aim to foster sound working relationships with their franchisees.