Franchising

New Franchising Sector Powers for �Թ�� Ombudsman

Emily Carter — Tue, 07 May 2024 04:32:23 +0000

New Franchising Sector Powers for �Թ�� Ombudsman Emily Carter Tue, 05/07/2024 - 14:32

07 May 2024

The Australian �Թ�� and Family Enterprise Ombudsman, Bruce Billson, welcomes the Australian Government’s response to the review of the Franchising Code of Conduct by Dr Michael Schaper.

The Minister for �Թ��, Julie Collins, has announced that the Government has accept Dr Schaper’s recommendations including for the Ombudsman to lead work to improve standards of conduct in franchising by developing best practice guidance and education, and to improve the comparability and publication of franchising data sets.

The Ombudsman will also be given the power to name and shame franchisors who have not participated meaningfully in alternative dispute resolution – a move that will hopefully discourage big business from using their muscle to force time and resource-poor small business to have no alternative but to take them to court.

ASBFEO’s existing service that provides small business with low-cost legal advice about disputes with the Tax Office will also be expanded to cover initial advice about franchising disputes.

“These changes are a natural extension of our existing role and an opportunity to promote good behaviour and shared success in this dynamic sector of the economy by encouraging exemplar and best practice,” Mr Billson said.

“Almost 10 per cent of the business disputes that come to our agency involve franchising and we have valuable insights on the points of difference and tensions that can lead to conflict between a franchisor and franchisees.

“We need to have the right balance between regulatory safeguards and conduct expectations for franchisees and franchisors while providing for incentives for businesses to invest, develop, take risks, boost productivity, innovate and share success in franchise partnerships.”

The franchise sector is worth $135 billion and employs more than half a million people. There are some 70,700 franchisees in Australia and almost all of them are small businesses, as are some franchisors.

The Government said it will amend legislation to provide ASBFEO with the power to name franchisors who have not participated meaningfully in alternative dispute resolution.

“This will mean big businesses in a dispute with a small business will have to think about the reputational damage to their brand name by using their muscle to force a small business to have no alternative but to seek redress in court – an expensive and time-consuming pathway they almost always cannot afford to take,” Mr Billson said.

“At present we can only use this name and shame power under our Act as it relates to general business disputes, rather than as part of obligations under the Franchise Code. These additional powers should apply to franchisees as well as franchisors as we have had experiences where both sides of a franchise relationship can behave appallingly and refuse to engage in or derail reasonable dispute resolution processes.”

In further recognition that the cost of legal advice can be a deterrent to smaller businesses, the Government is expanding ASBFEO’s Tax Concierge Service to support access to low-cost legal advice on alternative dispute resolution matters.

“This will help franchisees in particular to better understand their dispute, its legal merits, potentially viable remedies and how best to resolve it,” Mr Billson said.

The Government said it will consider further changes as part of the independent statutory review of the ASBFEO dispute resolution services next year and establish a Treasury taskforce to conduct a cost-benefit analysis of introducing a licensing regime for the franchise sector.

“We welcome this,” Mr Billson said. “ASBFEO’s legislation requires a review at least every four years of the way that we operate our assistance function and whether the approaches, tools and resources available to us to resolve disputes are adequate or could be enhanced.

“The concept of a licensing regime is a bold suggestion for a franchise sector that is already more highly regulated here than in other comparable economies and ASBFEO looks forward to contributing to the feasibility work of the proposed taskforce.

“We believe there is scope in franchising for the Government to consider a non-regulatory approach to activating the existing option for parties to agree to arbitration under the Franchising Code of Conduct by urging franchise systems to pre-commit to binding arbitration where disputes cannot be resolved through alternative dispute resolution. Franchisors that make such a positive commitment to binding arbitration should be allowed to have this recognised in the Franchise Disclosure Register.

“But there also needs to be more effective enforcement by regulators, such as the ACCC, of the Code and other legal protections that already exist, particularly around unfair conduct and anti-competitive behaviour.

“The Government’s response to the Schaper Review further support good and fair commercial relationships in franchising. In helping with franchising disputes, we are often disappointed when mediation and conciliation does not produce a resolution for both parties.

“Currently, it is only the well-resourced and patient that can further pursue their interests via existing legal channels, unless the regulator steps up and in. This can distort the bargaining position of the parties and willingness to find an early mediate resolution, and is why we advocate for a responsive, affordable and restorative Court-based mechanism that can ensure all parties can benefit from Code protections and legal provisions intended to support fair and reasonable commercial dealings.

“We believe that would be a game changer to deliver the Government’s objective to give people the confidence to enter business relationships and to invest, with the ‘bumper rails’ that aim to ensure reasonable dealing and fair commercial conduct being supported by an affordable and accessible legal process if it is required.

“We look forward to working with the Government, the ACCC, Treasury and the franchise sector in implementing the response to the Schaper Review and the careful considerations this will involve”, Mr Billson said.

MEDIA CONTACT: 0448 467 178

TRANSCRIPT: Franchising Code of Conduct Review

Olivia Pearce — Tue, 13 Feb 2024 03:24:39 +0000

TRANSCRIPT: Franchising Code of Conduct Review Olivia Pearce Tue, 02/13/2024 - 14:24

09 February 2024

Australian �Թ�� and Family Enterprise Ombudsman Bruce Billson interview with Leon Delaney on Radio 2CC Canberra.

Subject: Franchising Code of Conduct Review

Leon Delaney
The �Թ�� and Family Enterprise Ombudsman says he's pleased with the review of the Franchising Code of Conduct that has been completed for the federal government. And the Ombudsman, Bruce Bilson is on the phone now. Good afternoon.

Bruce Billson
Leon, fab to be with you and your listeners, sir.

Leon Delaney
Thanks for joining us. I note in your press release today you say that you support the report and the majority of the sensible recommendations. Does that imply then that there are some recommendations that you do not support?

Bruce Billson
No, I think it implies there's actually more that we thought could be recommended. There's a couple of areas where we felt greater clarity could have been provided. I won't bore your listeners with all the nitty gritty, but the Franchise Code of Conduct seeks to put some bumper rails in and some guidance on what good, adult-to-adult relationships looks like within the franchise arrangement. A couple of things we thought would have been helpful, like, when does that relationship actually start? If you and I put down $150,000 as a deposit on a franchise, does that start the relationship? Are there duties and obligations that are created at that point? Or is it only when there's a formal commercial agreement signed into? And if that's the case, what happens if we decide under the Franchise Code not to proceed to purchase the franchise that we put the deposit down for? When do we get our money back? Those sorts of things, Leon, that we thought are still work to be done. Another couple of examples. When you go to fill up your fuel before a lovely weekend in the capital, that fuel outlet may well be a franchise business governed by the Oil Code in terms of how that retailer accesses the motor spirits, the petrol, the diesel. But then there's a Franchise Code that sort of relates to stuff that's inside the shop and what happens when those things are in conflict? So that's where we thought there's some good work still to be done, and we'll be feeding that information into the Treasury process as the Government and the Minister decide what to do about the review.

Leon Delaney
Okay, now, a little bit of history here. Franchising has been a very successful model for many, many people to get involved in running a business, and they've done so very happily and successfully over the years. However, there have been some bumps in the road. Most notably, there were a couple of examples where franchisors were setting impossible conditions for franchisees who effectively signed a contract that cost them a lot of money to enter in a business that was just not viable. And yet the franchisor was able to get away with it.

Bruce Billson
And that's one of the things that's alluded to in the recommendations of the review. Just to give your listeners a bit of a sense that we are almost the franchise capital of the world. There's about $1 in every $11 in the Australian economy generated through a franchise system. So, getting this right matters. There's over 1100 separate systems or brands your listeners might recognise them as, and over 70,000 outlets or customer-facing businesses operating within those systems. So, you're talking about $135 billion worth of turnover and more than half of a million Australians employed in these systems. There are some very prominent systems that are well-known, and those brands have proven the test of time. There are other systems that might have just been, frankly, an idea that someone had and they need money to grow that idea and to maybe see it develop into a real business. And they go out and say, hey, let's franchise this. And you're going, hang on, if franchising is buying the right to use others’ intellectual property and systems for a period of time within an area or a location, how can you sell intellectual property that doesn't actually exist? So that's part of the challenge. And one of the things that we liked about the franchise recommendation is, hey, don't sell franchises where there's no reasonable prospect of profit. We're also a very regulated franchise economy compared to other countries, in part because of the experience that you've pointed to, Leon. But sometimes when there is too much information, people look at it and think I'm not going to have a good hard look at that, it's obviously comprehensive, the regulators have got it right, without actually understanding what the deal is. In some of those cases, franchise opportunities only work if you, the franchisee, put 40 hours a week into the business. If you think you can buy the business, step aside from it and pay someone else to run it, in some cases, that makes it not a viable investment. That sort of stuff should be super clear up front, so you know what you're getting into. That sounds a bit like a terms sheet, doesn't it? What's the deal? So that people can go in knowing with their eyes open that this is something they want to invest their time and their energy into.

Leon Delaney
One of the other big issues that emerged going back a decade or more now, was the instances of wage theft that involved franchise businesses. And in some instances it wasn't so much that the individuals operating the franchise business were ripping off their employees, they were left in a position where they had no other choice by the franchisors, the headquarters. Is that sort of thing dealt with in this report?

Bruce Billson
No, that's been dealt with through workplace relations laws. There's a provision, and I don't want to sound too lawyerly, called accessorial liability. So, if a franchise system, a franchisor, sets up a business that has inherent in it, breaking the workplace relations laws, they're as much on the hook as the direct employer is, who happens to be the franchisee. So that's been largely addressed, and there's now a responsibility where there's some control over those business operations. The franchisor can be caught by the law in that regard as well. But what the review did highlight – and we've just talked about one example in terms of underpayment of wages – is what happens if the Franchise Code itself is being breached? What if the duty to act in good faith towards each other is not being honoured and someone's being an absolute shyster to someone else, and you're finding that that relationship's really strained. The code sort of says, here's things that should happen and if it doesn't, go to the regulator. And one of the biggest challenges we face is the regulator, the ACCC, is using taxpayers' money to investigate concerns, and of course, it's going to investigate those things that have the biggest impact on the economy, that are, in their words, systemic, recurring problems. And you and I as individuals might have our life savings on the line. We think this is the world. But when it comes to the regulator, they might think, that's one example. We'll go and deal with one that's got 15 examples. Where does that leave us Leon? And that's one of the things that we're very interested in. How does a business get access to justice without contemplating going to the Federal Court and spending a quarter of a million bucks to get your day in court? That's an area where we think more work needs to be.

Leon Delaney
Well, one of the things that this report does recommend is an expansion of the powers of your office. So, what would that entail?

Bruce Billson
Well, a couple of things. Right now, we've got an important role under the code. So, where a dispute arises and the franchisee and the franchisor, through proper processes within the franchise system, can't work it out, they can issue a notice of dispute and then come to us to see whether we can play a role in mediating that dispute to try and find a way forward. So often in business when a dispute arises, you don't want to blow up the relationship. You actually need and want to keep dealing with the other party. Nowhere is this more evident than in franchising. When the franchisor has a beef with the franchisee, if you can't work that out that makes that symbiotic, mutually supportive relationship of franchising, pretty difficult. And that's where we get brought in to see whether we can find a resolution. Problem is, the parties might turn up and go through the motions, but not really have their heart in it. Now, in other areas of commercial disputation, if that happens and I issue a notice to engage in mediation and someone doesn't behave in a way that's a problem-solving approach, I can issue a notification to the rest of the economy saying, hang on a minute, we've got this issue with this company. They've behaved like absolute peanuts as we've tried to find a resolution. Be cautious and aware if you are thinking of doing commercial dealings with this group. That's not something I can do in the franchise area. That, along with improved education and awareness of what people are signing on to, they're the sorts of things that were recommended that my office should be doing more.

Leon Delaney
So, in other words, the ability to name and shame.

Bruce Billson
It's got a slightly funkier tone to it in the legislation I operate under. I use the language internally of name and shame. But the law actually talks about notification. It's actually designed to alert others to the form, to the behaviour, of that business.

Leon Delaney
It’s a public service notice?

Bruce Billson
Pretty much. But it has that same effect that you're alluding to. That's not something I can do under the Franchise Code at the moment. But the other part of it is, Leon, in the franchise sector you've got those behemoth brands that seem to be on every corner of downtown Canberra, that are franchise businesses. And you might think that's all that happens in franchising. No, no. There's an awful long tail of very small franchise systems where the franchisor and the franchisee are both small businesses and that's where we play quite an educative role in trying to help those parties get along and hopefully succeed together. And that's something that the review recommended we should do more of. More of that educative role to try and let the good franchising approach, which is good for business, be more the rule rather than the exception. Franchising done well is an excellent model of entrepreneurship. What can we do to improve the prospects that it's done well? And that's what some of the recommendations in review point to.

Leon Delaney
Indeed. Bruce, thanks very much for your time today.

Bruce Billson
Great to be with you, Leon.

Ombudsman welcomes Franchising Code of Conduct Review

Emily Carter — Thu, 08 Feb 2024 05:52:05 +0000

Ombudsman welcomes Franchising Code of Conduct Review Emily Carter Thu, 02/08/2024 - 16:52

08 February 2024

The Australian �Թ�� and Family Enterprise Ombudsman, Bruce Billson, has warmly welcomed the release of the review of the Franchising Code of Conduct by Dr Michael Schaper.

The Ombudsman performs a range of functions under the Franchise Code to support informed decision making, healthy franchise relationships and the resolution of disputes that may arise throughout the course of the franchising relationship.

“Dr Schaper has produced a well-researched and thoughtful report for the Australian Government and we support the report and the majority of his sensible recommendations to strengthen the Franchising Code and regulatory landscape for small and family businesses,” Mr Billson said.

“The franchise sector is worth $135 billion and employs more than half a million people. There are some 70,700 franchisees in Australia and almost all of them are small businesses, as are many franchisors.

Several of the recommendations involve the office of the Ombudsman, and Mr Billson said he would enthusiastically work with the Government and officials to explore the expanded educative role the recommendations envisage.

“We support the recommendation for a clear statement of purpose to be inserted into the Code to explicitly state why it exists and what it seeks to achieve,” he said.

“Similarly, we back changes that would also provide a clear statement to prospective franchisees that while purchasing a franchise provides an opportunity to make a reasonable return, it does not guarantee a fixed rate of return. The statement would also outline other terms of their arrangement, so they have quality information to make an informed decision.”

Supporting this, Dr Schaper recommends ASBFEO, the ACCC and other agencies develop best practice guides to improve standards of conduct in franchising.

“We are willing to assist with the drafting of the objective of the code, helping explain what the benefits and risks are and to explicitly include the duties of parties under the code,” Mr Billson said.

“This is an opportunity to promote good behaviour and shared success and encourage exemplar and best practice.

“Almost 10 per cent of the business disputes where we provide case management involve franchising.

“We have valuable insights on the points of difference and tensions that can lead to conflict between and franchisor and franchisees. We also play an important role in helping parties navigate the complexities that come with dispute resolution, including helping them gain access to Alternative Dispute Resolution processes, such as mediation and conciliation.”

Dr Schaper also recommends expanding ASBFEO’s powers to name franchisors who have not participated meaningfully in alternative dispute resolution.

“At present we can only use this power under our Act as it relates to general business disputes, rather than as part of obligations under the Code. These additional powers should apply to franchisees as well as franchisors,” the Ombudsman said.

Dr Schaper says the Government should also investigate the feasibility of introducing a licensing regime to better regulate most aspects of the franchisee-franchisor relationship.

“We think the Government should analyse the costs and benefits of introducing a licensing regime to regulate the franchisee-franchisor relationship – noting that Australia’s franchising system is already highly regulated and the vast majority of franchise parties on both sides of the relationship are small, less well-resourced businesses,” Mr Billson said.

“In exploring whether there are advantages in introducing a licence system, it will be important to examine why existing safeguards and better franchising practice Code expectations are not always implemented.

“Lamentably, in many cases, not enough use is being made of existing powers to take action. Small and family businesses are not easily able to enforce protections under the Franchising Code and hope and rely on the regulator to take action where they feel they have been infringed upon.

“We encourage the Government to consider how a revised Code could be more effectively enforced.

“We have proposed the introduction a Federal �Թ�� and Codes List into the Federal Circuit and Family Court of Australia, to provide small businesses with an affordable and timely means of enforcing their legal rights.”

MEDIA CONTACT: 0448 467 178

Ombudsman welcomes proposed franchising reforms, hefty fines

admin — Fri, 10 Dec 2021 04:13:34 +0000

Ombudsman welcomes proposed franchising reforms, hefty fines admin Fri, 12/10/2021 - 15:13

12 March 2021

The Australian �Թ�� and Family Enterprise Ombudsman Bruce Billson has welcomed the government’s proposed reforms to the Franchising Code of Conduct, including changes specific to the automotive industry.

Under the proposed amendments to franchising laws, big businesses will face penalties of up to $10 million for wilful, egregious and systemic breaches of their obligations under the Franchising Code.

The suite of reforms seeks to specifically mitigate the power imbalance between multinational car manufacturers and Australian dealers.

“These proposed changes represent significant progress and once passed, will go a long way to levelling the playing field in the automotive franchising sector,” Mr Billson says.

”They will ensure that franchise-like arrangements where dealers are operating as the car-maker’s new vehicle sales agent still benefit from the Franchising Code protections.

“The changes that apply to the automotive industry are welcome as is the Government’s commitment to continue working with the automotive franchising sector to examine unfair contract terms in their agreements.

“A mandatory best practice framework will help address the ongoing issue of multinational car manufacturers who fail to follow the current voluntary principles. Examples of small car dealers being devastated by the actions of multinational manufacturers in recent years has warranted this action.

“Higher fines for significant breaches of the Franchising Code will act as a big stick that will force the larger players to think twice before acting unfairly towards their franchisees.

“We also welcome the government’s interest in exploring arbitration to provide small businesses with access to binding and right-sized dispute resolution pathways that are less costly and faster than going through the court system – a theme pursued in our Access to Justice report.

“My office looks forward to seeing the detail of this announcement and has been pleased to see the bipartisan support for the much-needed reforms to the franchising sector.

“I continue to encourage franchisees who believe they have been unfairly treated by a franchisor or are engaged in a franchise dispute to contact my office for assistance.”

Franchise Disclosure Registry to help restore confidence in sector

admin — Fri, 10 Dec 2021 03:41:34 +0000

Franchise Disclosure Registry to help restore confidence in sector admin Fri, 12/10/2021 - 14:41

13 May 2021

The Australian �Թ�� and Family Enterprise Ombudsman (ASBFEO) Bruce Billson has welcomed plans to establish a new mandatory Franchise Disclosure Registry, saying it will provide prospective franchisees with vital information needed prior to entering into a binding franchise agreement.

Mr Billson says the national registry, to be released next year, will require franchisors to lodge disclosure documentation about their franchise annually. These documents will be publicly available through the registry.

“There is a clear need of greater awareness in the franchise sector and this registry will certainly help restore confidence in this sector,” Mr Billson says.

“My office has advocated strongly for the implementation of this registry to improve transparency of franchise operations, so prospective franchisees are properly informed before signing a franchise agreement.

“Over the past six months my office has fielded over 240 calls from franchisees seeking information regarding disputes under Franchising Code of Conduct.

“This demonstrates just how critically important it is for prospective franchisees to know what they are getting into before signing a franchise agreement.

“The Franchise Disclosure Registry will be publicly available, to help prospective franchisees undertake vital due diligence that is necessary before entering into a franchise agreement.

“The cost of purchasing and setting up a franchise can be very significant, so it makes good business sense to do your homework first.

“As part of that due diligence, it is important to seek independent legal and business advice before making that substantial investment.

“Prospective franchisees need to ensure they are aware of a range of key ongoing costs associated with running the business such as wages, rent and inventory.”

The Franchise Disclosure Registry is scheduled for release in early 2022. There will be a transition period to allow franchising businesses to understand the new requirements before the registry is mandated.

Anyone involved in a franchise dispute under the Code is encouraged to contact ASBFEO for assistance on 1300 650 460 or email info@asbfeo.gov.au

Franchising Code reforms help level playing field for franchisees

admin — Fri, 10 Dec 2021 03:31:28 +0000

Franchising Code reforms help level playing field for franchisees admin Fri, 12/10/2021 - 14:31

01 June 2021

The Australian �Թ�� and Family Enterprise Ombudsman Bruce Billson says the significant reforms to the Franchising Code of Conduct announced by the Australian Government today will help level the playing field across the franchising sector.

Mr Billson says the reforms to the Code, which come into effect from 1 July 2021, will go a long way to addressing the power imbalances that often exist between franchisees and franchisors, particularly when disputes arise.

“These reforms are an important step towards getting the balance right for our small and family businesses in the franchising sector,” Mr Billson says.

“In particular, providing greater powers to my office to appoint an independent arbitrator when both parties agree, will help resolve disputes in a cost-effective and timely manner, while crucially protecting business relationships. This supports a no-surprises, collaborative and mutually respectful commercial relationship between franchisees and franchisors.

“Allowing my office to facilitate group mediation when several franchisees are in a similar dispute with the same franchisor, is another critical reform that will help restore confidence in this sector.

“The changes to the Code mean prospective and current franchisees will be better armed with vital information needed to run their business.

“This includes more transparency around the marketing fund, with an annual financial statement which sets out meaningful information regarding expenditure. Greater visibility around rebates and leasing arrangements will be achieved by these reforms.

“The new mandatory Franchise Disclosure Registry, which is scheduled for release in early 2022, is key to providing prospective franchisees with vital information needed prior to entering a binding franchise agreement.

“Over the past six months my office has fielded over 240 calls from franchisees seeking information regarding disputes under the Franchising Code of Conduct.

“This demonstrates just how critically important it is for prospective franchisees to know exactly what they are getting into before signing on the dotted line.

“Ultimately these much-needed reforms to the Franchising Code of Conduct will play an important role in making Australia the best place to start, grow and transform a business.”

Anyone involved in a franchise dispute under the Code is encouraged to contact ASBFEO for assistance on 1300 650 460 or email info@asbfeo.gov.au.