In March 2019 the highly anticipated report from the Senate inquiry into the operation and effectiveness of the Franchising Code of Conduct was handed down. Crucially, that report called for the establishment of a taskforce (Franchising Taskforce) that would consult stakeholders and advise the Government on certain recommendations.
The Taskforce has now been established and has recently released an issues paper for comment.
This article will arm you with the key things you need to know to get up to speed with the Franchising Taskforce and its role in franchising reform.
Why was the Taskforce established?
On 22 March 2018, the Senate passed a motion for the Parliamentary Joint Committee on Corporations and Financial Services (the Committee) to commence an inquiry into the operation and effectiveness of the Franchising Code of Conduct and the Oil Code (the Inquiry).
On 14 March 2019, the Committee tabled its findings and recommendations in a report titled “Fairness in Franchising” (the Report). The Report is extensive and contains a total of 71 recommendations that range across a wide variety of proposed reforms to the franchising sector.
Acknowledging that several of the Report’s recommendations would require detailed consideration prior to implementation, one of the Report’s key recommendations was the establishment of an inter-agency franchising taskforce.
Who are the members of the Taskforce?
The Taskforce is co-chaired by the Department of Employment, Skills, Small and Family Business and the Department of the Treasury and has senior representatives from those departments, as well as the Department of the Prime Minister and Cabinet. Other agencies will be consulted as needed.
What is the Taskforce’s mandate?
The mandate of the Taskforce is to examine the feasibility and implementation of various recommendations and advise the Government on its response to the Report. Refer to our prior article for a summary of the recommendations referred to the Taskforce.
The Issues Paper
On 23 August 2019, the Taskforce released the Franchising Taskforce Issues Paper (Issues Paper). The Issues Paper groups the relevant recommendations into seven draft policy principles (discussed below) and invites confidential written responses from participants in the franchising sector.
The Issues Paper also confirms that the Taskforce will not be considering recommendations directed to independent agencies or which relate to other government processes. Recommendations relating to the strengthening of unfair contract term protections, ACCC action, whistle blower protections and franchising in the automotive sector will not be considered by the Taskforce, however the Taskforce will consult with the Department of Industry, Innovation and Science in relation to the franchising in the automotive sector.
The draft policy principles developed by the Taskforce
The Issues Paper identifies the following 7 draft principles which emerged from the Taskforce’s reading of the Report. The principles cover the various business phases in franchising (entering a franchise agreement, operating a franchise and exiting) as well as the regulatory framework applying across all of the phases.
- Prospective franchisees should be able to make reasonable assessments of the value of a franchise before entering into a contract with a franchisor;
- Franchisees and franchisors should have “cooling off” time to consider whether the relationship is right for them after signing;
- Each party to a franchise agreement should be able to verify the other party is meeting its obligations and is generating value for both parties;
- A healthy franchising model fosters mutually beneficial cooperation between the franchisor and the franchisee, with shared risk and reward, free from exploitation and conflicts of interest;
- Where disagreements turn into disputes, there is a resolution process that is fair, timely and cost effective for both parties;
- Franchisees and franchisors should be able to exit in a way that is reasonable to both parties; and
- The framework for industry codes should support regulatory compliance, enforcement and appropriate consistency.
The recommendations from the Report falling within the Taskforce’s mandate are grouped under the appropriate draft principle and the Taskforce has posed a number of questions in relation to each principle and the associated recommendations.
The Taskforce is now seeking feedback on the Issues Paper, in particular the questions raised in relation to each principle.
Hints at potential reform?
Some questions posed in the Issues Paper are worded generally however others hint at the potential reform being considered by the Taskforce. For example, questions are posed in the Issues Paper about:
- Making it easier for prospective franchisees to obtain information, including on a register of franchises or a franchising website;
- Increased frequency and greater regulation in respect of marketing fund reporting;
- Increased disclosure and regulation of supply arrangements;
- Whether there is a role for mandatory arbitration when mediation does not resolve a dispute; and
- The imposition of a levy on franchisors to support dispute resolution services.
What’s next for the Taskforce and how can you have your say?
The deadline for responses to the Issues Paper is 5pm AEST on Friday, 20 September 2019. Importantly, the Taskforce has confirmed that all response are confidential and will not be published.
Following the deadline for the submission of responses on the Issues Paper, the Taskforce intends to analyse the responses and release a regulation impact statement in October 2019, for further consultation.
Once the consultation period in relation to the regulation impact statement has closed, the Taskforce will assess the responses and provide advice to Minister for Employment, Skills, Small and Family Business and Federal Treasurer.
Finally, at the conclusion of the process, it is expected that the Government will announce its position on the reforms to the franchising industry.
This article was written by Allison McLeod, Partner and Marian Ngo, Senior Associate.