Franchisees to back Rudd's bully brief

A final point has to be made. The ACCC should be given the law, the money and the clout to have some wins. Its track record in protecting franchisees from bullying has been nothing to crow about.

The Australian
April 30, 2008

Franchisees to back Rudd's bully brief
Peter Switzer

BIG business bullying is a worthy row to hoe for the Rudd Labor Government and sorting out predatory pricing is a good place to start.

However, don't get too excited, as bullying is widespread and the small business champion - the Australian Competition and Consumer Commission - is no world-beater.

This new Rudd goal comes as the West Australian Government has released its own bullying report into the franchise industry.

Of course, it is not called the Bully Report, but instead travels under the name of the Inquiry into the Operation of Franchise Businesses in Western Australia.

Aside from some educational issues the inquiry found there were issues involving end-of-agreement arrangements, and it recommended legislative change by the federal Government to address these shortcomings.

It also recommended changes included requiring a franchisor to explicitly disclose a franchisee's entitlement, or lack of entitlement, to goodwill or other compensation if an agreement was not renewed.

It also said a franchisor should conduct a pre-expiry review with a franchisee at least 12 months before the end of an agreement.

The report wants mediation procedures to be improved to ensure mediation agreements are enforceable, with prescribed penalties set out for non-compliance.

Ray Borradale, a former franchisee who had a long-running dispute with his franchisor, has become a crusader for franchisees' rights.

He thinks franchisees are regularly bullied out of a fair deal, but is happy with the report's recommendations.

"I have just read the final report and while we knew we would never see everything we believed should be addressed, this report is far, far more than I ever expected," he said.

"Some of us had lost faith in the integrity of those who should make a difference when the few that spoke out were marginalised and ridiculed.

"The report will go a long way to saving many who might never appreciate what could have happened to them, and it will go a long way to strengthening the value and the quality of all franchising in Australia."

The Rudd assault on predatory pricing has attracted criticism from Institute of Public Affairs' director Alan Moran.

Dr Moran said laws to stop big businesses cutting prices to destroy small business rivals created more problems than they would solve.

"Everyone says if a competitor sells something cheaply they must be breaking the law and trying to throw me out of business," he told The Australian. "But what are the tests? There are no tests?"

He said changes would open the floodgates on small businesses claiming predatory pricing and branded the Rudd Government moves as "pathetic". But that's exactly the word I would use to describe the efforts of past governments to fix genuine cases of predatory pricing.

The big test case was the Boral case.

This was a landmark judgment delivered on February 7, 2003, where the High Court of Australia held that building and construction materials supplier Boral had not contravened the Trade Practices Act in relation to the act's misuse of market power provisions.

Boral was judged to be innocent, at least in the eyes of the law, but its actions smacked of loss-making cost cutting to drive out its rival, C&M.

I once was invited to a weekend with competition lawyers and was bound by Chatham House rules, which means I can't name names and their opinions. However, the general consensus was that determining predatory pricing, unconscionable conduct and big business bullying is too hard to produce good law.

Without a doubt, bullying by big business does go on.

Troubled insurer IAG took on panel beaters and car repairers and lost the goodwill war. It was a public relations disaster for its relationship with the industry and their customers.

Labor governments - federal and state - in opposition have shown interest in late payments bills, but these have not really gone anywhere.

This is despite the fact that many big businesses - insurers have been named here regularly - often don't pay their suppliers for 60-90 days.

Recent federal governments have resolved to make public servants pay their bills on time to small operators but these changes have worked better in principle than in practice.

Criticism of the Government's attack on predatory pricing is linked to the inadequacies of "the Birdsville amendment".

Championed by National Party senator Barnaby Joyce, it sought to protect small businesses from big operators who cut prices below cost until the small competitor went out of business.

Clearly, the amendment's intention is noble and any fool who argues against this is a stooge of big business. If the lawyers tell us the wording of the law needs to be improved, then so be it, but let's not toss a decent baby out just because the water smells.

Big business oligopolies cannot be trusted to look after the consumer once smaller rivals have been chased out of business. Anyone who doubts this should look at the banks' behaviour on interest rates and fees.

A final point has to be made. The ACCC should be given the law, the money and the clout to have some wins.

Its track record in protecting franchisees from bullying has been nothing to crow about.

Peter Switzer is the founder of Switzer Business Coaching

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