Franchise businesses would face much tougher penalties for breaching rules governing their relations with franchisees, if the competition regulator gets its way.
The ACCC is pushing for tougher penalties under the Franchising Code of Conduct, in connection with a broader push to strengthen unfair contract provisions, in a bid to “better protect franchisees”.
Mick Keogh, the commission’s deputy chair, has previously told My Business of the need to introduce penalties and mandate compliance to eradicate unfair contract terms being imposed on SMEs by larger businesses.
He reiterated these concerns in a speech to the National Franchise Convention Legal Symposium in Melbourne over the weekend.
“The biggest limitation within the current legislation is that unfair contract terms are not illegal,” Mr Keogh said.
“The worst that can happen under the law is that unfair terms are subject to legal challenge, the court declares them to be unfair and effectively strikes them out of the contract. But a business does not face a penalty for including them in the first place.
“So, lacking a legal impediment, and without fear of financial penalties, businesses have an incentive to include potentially unfair terms in their contracts. We want to see this changed to more adequately protect small businesses, including franchisees.”
Mr Keogh also suggested there is a separate need for harsher penalties to deter franchise brands from exploiting franchisees.
“We want to see the Franchising Code strengthened, and supported by stronger penalty provisions, to ensure franchise systems operate well for all parties involved, to encourage compliance with franchise agreements, and to keep competition on an even keel,” he said.
“It is in the interests of all involved in the sector to have a clear understanding of what is required by law, so that businesses focus on becoming more competitive and growing market share, rather than being tempted to take shortcuts that will ultimately damage the business, but also the reputation of the franchise sector as a whole.”
Additionally, Mr Keogh expressed reservations about a push by the Franchise Council of Australia for a public register of franchise networks, which he said may inadvertently lead fewer prospective franchisees to do proper due diligence by mistakenly believing listed networks had been audited or somehow verified.
Earlier this year, Jim Penman – founder of prominent franchise chain Jim’s Group – hit out at the existing legal framework for the franchising sector, claiming it is “run by lawyers, for lawyers”.
“Having a system that is run purely to benefit lawyers with stuff-all interest in the protection of ordinary people is not a good system,” he told My Business in June.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.