Government gives green light to all Code Review recommendations

Franchising Code government response
The federal government has accepted the 23 proposals in the Code Review. (Source: Bigstock)

A licensing system for franchising will be considered as a result of the Federal Government’s acceptance of all of the 23 recommendations in the extensive review of the Franchising Code of Conduct.

The Minister for Small Business, the Hon Julie Collins MP, yesterday released the government’s response to the review, six months after the publication of the report conducted by Dr Michael Schaper.

In his report Dr Schaper found the Code was generally fit-for-purpose but would benefit from some changes.

Among the changes Dr Schaper proposed a licensing system as a possible solution to increased protection for franchisees, and recommended an investigation into its viability.

Licensing system to be considered

In response, the government has said it will form a taskforce in Treasury to comprehensively analyse the proposal and possible implementation concerns. The government will consult with the franchising sector and relevant regulatory bodies such as the ACCC and the Australian Securities Investment Commission as part of this investigation.

Collins said “We know that there have been challenges in the franchise sector, particularly in relation to imbalances of power between franchisors and franchisees, which is why our Government response is targeted at improving partnerships in the sector.”

However, the Franchise Council of Australia is not supportive of a licensing system.

FCA Chair Brendan Green said “We do not believe that a licensing regime is the best path to achieve this and look forward to working with the Government and the Treasury Taskforce in their considerations.”

Green said “Even by the ACCC’s own statistics, which have franchising complaints at under 200 for FY23, a complaint rate of just 0.02 per cent, the current approach is working.”

Green said overall the FCA applauded the government’s commitment to supporting the Australian franchise sector.

Easier for small businesses to operate

“The FCA’s position continues to be that evolution and refinement is needed to ensure the Code is fit for purpose in the rapidly changing business landscape. Many of the recommendations to be adopted address the changes the FCA has called for, including simplifying disclosure requirements, compliance, and red tape.”

Collins said the recommended changes throughout the report will make it easier for small businesses to operate in the sector.

“In some cases, franchisees have lost out due to deals that have gone awry or unfair contract terms. That’s why we will improve protections for franchisees by requiring all franchise agreements to provide a reasonable opportunity to make a return on their investment, and to ensure that franchisees are appropriately compensated if their agreement is terminated early.”

ASBFEO gains extra powers

The office of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) will gain the power to name and shame franchisors who have not participated meaningfully in alternative dispute resolution.

Bruce Billson, Australian Small Business and Family Enterprise Ombudsman, said “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.”

In addition the government will ensure more robust statistics on franchising – a role that will initially fall to the ASBFEO.

The Code will be redrafted based on its current format within the year and a five-yearly review of the Code will be introduced.

Auto industry additions

The government has confirmed it will include service and repair work conducted by motor vehicle dealerships within the remit of the revised Code.

The Motor Trades Association of Australia has welcomed the inclusion, and the overall response to the review.

MTAA CEO, Matt Hobbs said “MTAA has been calling on the Government to address franchisor opportunism in the automotive retail sector for many years and we are pleased their endorsement of Dr Schaper’s recommendations will go some way to address the imbalance between automotive manufacturers and dealers.

“We continue to believe that an independent code is a necessary step, particularly to drive greater competitiveness, sustainability, and productivity in the sector as it undergoes the biggest transformation in its history with the advent of EVs,” he said.

You can read the government’s response to, and the details of, the Code Review here.