Mixed Response To Franchise Law

In Australia, an amendment to the Trade Practices Act saw a compulsory Franchising Code of Conduct introduced in 1998 which has been described as "the most stringent national regulations for franchising introduced anywhere in the world.

www.xtramsn.co.nz
October 18, 2005

Mixed Response To Franchise Law

Earlier this year, a new lobby group called the New Zealand Fair Trading Coalition prepared a briefing paper to Government seeking reform particularly in the areas of unconscionable conduct, franchise law, codes of practice and collective bargaining.

The desirability or otherwise of specific regulation of the franchise sector has since been hotly debated within the sector, both at the Franchise Association's annual conference in June and at subsequent meetings.

In New Zealand, there is currently no legislation that deals specifically with franchising.

Instead, franchisors and franchisees are governed by the same laws that apply to all other commercial enterprises.

This is the situation in about half the countries which have sufficiently well-developed franchise sectors to be members of the World Franchise Council; in the others, the type of legislation varies from that which sets out the way in which franchises can be sold to a more proscriptive form governing many aspects of the ownership and ongoing management of a franchised business.

In Australia, an amendment to the Trade Practices Act saw a compulsory Franchising Code of Conduct introduced in 1998 which has been described as "the most stringent national regulations for franchising introduced anywhere in the world.

Given the number of franchises now operating both ways across the Tasman and the increasing impact of CER, there is an obvious possibility of franchising legislation being enacted here.

Interestingly, as was evident at the Conference debate, it is an issue on which franchisors and advisors are themselves divided. On the one hand, franchisors recognise that the small number of 'cowboys' purporting to offer franchises do damage to the reputation of the franchise sector and to franchisors and franchisees as a whole. If legislation were to rid franchising of such hangers-on, it would be well worth it, they say.

On the other hand, franchisors are wary of the impact of legislation that Australian experience suggests would slow growth dramatically in the sector for several years while it is tried and tested.

More legislation would mean more compliance costs, they say - and, unlike Australia, most of our franchises here are relatively small, meaning that the additional costs would be spread over a much smaller number of franchisees.

There is also the question of whether legislation would really achieve anything practical. While the Franchise Council of Australia has embraced legislation and government involvement in franchising enthusiastically, it has really had little choice, say critics.

They note that the last Australian survey suggested that the level of franchise disputes in Australia, after seven years of legislation, is running at an impressively low 2%.

However, surveys in New Zealand carried out regularly since 1997 have consistently found that the level here is at or around 1%.


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