New inquiry for Australian franchise sector

The Australian franchise sector will be subjected to its fourth national franchise inquiry in 12 years with the Senate this week passing a recommendation for a joint Parliamentary inquiry to report back to government by September 30 this year.

The new inquiry was moved by Nationals Senator John Williams, who indicated in the media as early as December 2017 that he would seek an inquiry to explore any regulatory deficiency in the franchise sector following widespread media reports in the Fairfax press about franchisees of the Retail Food Group and other [mostly publicly-listed] brands.

The new inquiry will be conducted by the Parliamentary Joint Committee on Corporations and Financial Services, and will consider for both the Franchising Code of Conduct and the Oil Code:

• The operation and effectiveness of the Code with a focus on disclosure on likely financial performance, contractual rights, termination rights and geographic exclusivity, leasing arrangements and tenants’ rights, and running costs and costs of goods to be acquired through prescribed suppliers;
• The effectiveness of dispute resolution procedures under the Code;
• The impact of unfair contract laws on franchise agreements;
• Whether the Oil Code (and other industry codes) contain advantages or disadvantages for franchises in comparison to the Franchising Code;
• Termination and restraint of trade provisions;
• The enforcement of both Codes, and any other related matter.

Additional details regarding the inquiry are yet to be released, but with a report due by September 30, further information is expected to be released soon. Read more 1;  Read more 2;  Read more 3

Editor’s Note: New Zealand has no such franchise regulation, a ministry review in 2008/2009 having found that ‘proposals for regulation were unlikely to result in significant benefits and any benefits would likely be outweighed by the compliance costs of regulation.’ Despite the regulatory difference between the two countries, comparable surveys in recent years have found no difference in the level of disputes in franchising between Australia and New Zealand; however, franchise growth has slowed in Australia in recent years.

Franchise sector to face sixth inquiry in 12 years

The new franchise inquiry in Australia will be the fourth national inquiry, and sixth overall inquiry in 12 years - for an average of one inquiry every two years – making the Australian franchise sector perhaps the most probed business sector in Australian history.

The three previous national inquiries are:

• The Wein Inquiry of 2013 which led to changes to the Franchising Code of Conduct that came into effect on 1 January 2015;
• The Ripoll Inquiry “Opportunity not Opportunism” conducted in 2008, which led to Code changes in 2010; and
• The Matthews Inquiry in 2006, which led to Code changes in 2008.

In addition to the three national inquiries since 2006, two additional state inquiries into the franchise sector were held in Western Australia and South Australia in 2009. With the newly-announced federal inquiry, this makes six inquiries in 12 years for an average of one enquiry every two years.