Franchising Code of Conduct needs strengthening to better protect franchisees, including significantly increased penalties for breaches, and requiring improved and more meaningful information disclosure to franchisees. These changes, in combination with stronger unfair contract terms (UCT) law, would help to improve the operations of franchise businesses in Australia.ACCC Deputy Chair Keogh commented that
Both the Franchising and Oil Codes, which applies to service stations, are not as effective as they could be.
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.
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.Keogh noted that the Franchise Council of Australia is recommending franchise systems be registered on a public register but suggested that this may create the perception that information provided by franchisors has been audited and verified, or ‘accredited’, and would result in fewer potential franchisees doing their due diligence.
Keogh also highlighted concerns regarding B2B UCT laws:
The biggest limitation within the current legislation is that unfair contract terms are not illegal. 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
