It has been a tumultuous year for the franchise sector, but the year ends with new opportunities on the horizon and a great opportunity for the sector to self-regulate and stave off further legislation. There are also new and proposed regulatory changes beyond franchising that will impact many franchise systems, notably consumer law changes, gift card laws and modern slavery legislation. We summarise the implications in this newsletter.
It is easy to become consumed by the Parliamentary Inquiry into the Operation and Effectiveness of the Franchising Code of Conduct (Inquiry), with the final report due on February 14, 2019. The report is likely to be damning in its general condemnation of the sector, but short on workable solutions. It is likely to contain a general comment that action needs to be taken to address identified issues of concern, but it would be surprising if it contained specific recommendations for changes to the Code or new legislation. The Committee asked no questions of the Franchise Council of Australia in relation to its detailed and quite comprehensive submission. The only indication from the deliberations of the Inquiry to date is their apparent wholesale support for most of the ACCC recommendations requesting higher penalties and broader enforcement powers.
However it is important to remember that the Inquiry is only a parliamentary inquiry. A decision as to what, if any, action to take will be the responsibility of the Small Business Minister at the time. The bigger issue is how can the sector restore the reputation and credibility of franchising as a business model, and address the significant access to finance challenges caused by the coincidence of the Inquiry, the Banking Royal Commission and the drop in residential property values that support many business loans. For most franchise systems the margin compression caused by increasing rent, utility and wages costs and flat to declining revenue remains the biggest day to day challenge they face.
In this newsletter we take a closer look at the ACCC’s extensive submission to the Inquiry, which strongly advocates for increased penalties for breaches of the Franchising Code of Conduct (Code) and for breaches of the unfair contract terms legislation which impacts franchisors. We also summarise the proposed industry response, which will impose new higher standards on franchisor members of the Franchise Council of Australia that are specifically targeted at problems identified in submissions to the Inquiry. Higher standards will also open up opportunities to new pools of prospective franchisees identified by the FCA.
Rather than endeavour to predict the precise content of any recommended regulatory changes we will review the report when it issues and report to you in detail. Look out for events in our Melbourne, Sydney and Brisbane offices just after February 14, 2019.
Thank you for your support in 2018. We look forward to working with you again in 2019. In the meantime, we hope you enjoy a wonderful Summer break.
Best wishes from all the Norton Rose Fulbright team!
Save the Date!
Perspectives – Recruitment Excellence
Attracting and retaining quality franchisees is now, more than ever, one of the most important strategic priorities for every franchisor. In this “how to” session you’ll gain fresh insights to use business intelligence, technology, culture-building and other best-practice processes to protect and grow your franchise network.
We will be hosting this event in our Melbourne, Sydney and Brisbane offices in partnership with Seek Business and Franchise Relationships Institute. Details will be circulated in the New Year, but in the meantime, save the date!
Sydney- 4.30 pm on 7 February 2019
Brisbane- 4.30pm on 6 March 2019
Melbourne- 4.30pm on 7 March 2019