Hungry Jacks boss pushes for franchisee clause

"Most franchisees would believe that if they perform well, they can expect their agreements to be renewed on reasonable terms when they expire, and not have their business turned over or churned to the franchisor or new franchisee."

www.theaustralian.news.com.au
May 19, 2008

Hungry Jacks boss pushes for franchisee clause
Michael Pelly

ONE of Australia's largest franchise operators is pressing the Rudd Government to introduce a good faith clause as he fights to stop the forced closure of three fast-food outlets outlets.

Hungry Jack's owner Jack Cowin says a loophole in the law means 62,000 franchises across Australia can be deprived of the value of goodwill they build in their business.

Mr Cowin and other operators say franchisers should be obliged to negotiate and act "in good faith" and that existing laws do not reflect the market practice that agreements are usually renewed.

Mr Cowin's Competitive Foods is locked in a fierce battle with Yum Restaurants International, which owns the Kentucky Fried Chicken and Pizza Hut brands.

In addition to being a franchiser for Hungry Jack's, Cowin operates the KFC franchises in Western Australia and the Northern Territory.

Last year, he closed a KFC outlet in Rockingham after Yum refused to renew the franchise. He said yesterday Yum was poised to force the closure of another three in coming months.

In each case, he said, Yum was not prepared to recognise goodwill established over 30 years.

Small Business Minister Craig Emerson will attend the Small Business Ministerial Council and the Ministerial Council on Consumer Affairs in Christchurch on Friday, where recent inquiries in South Australia and Western Australia will be a leading item on the agenda. A spokesman for Mr Emerson yesterday said the minister was considering the reports and looked forward to discussing franchisee issues with his counterparts from the US and New Zealand.

"Any changes will have to improve the lot of franchisee and of the code overall," the spokesman said.

The WA and SA reports recommend a more stringent disclosure regime, greater involvement by the Australian Competition and Consumer Commission, a strengthening of unconscionable conduct laws in the Trade Practices Act and an update of the Franchising Code, which been in force for 10 years.

A Labor member of the SA government inquiry, Tony Piccolo, said the proposed changes would make churning more difficult.

"The recommendations seek to provide potential franchisees with the same level of information and legal protection afforded to every investor in the market," he said.

"It is not about protecting those who make unsound business decisions, but those who have been misled and are powerless to take action."

A Howard government inquiry into pre-purchase disclosure provisions led to changes from March 1 this year that were supported by Labor in Opposition.

The sector now fears Mr Emerson - who supported a good faith provision in Opposition, subject to its parameters being defined - is not ready for more reform, given he has resisted calls for another inquiry.

Mr Cowin said 90 per cent of franchise deals were renewed.

"Continuity of the franchise means that franchisees can reap the rewards of their efforts by selling their business as a going concern when they choose," Mr Cowin said.

"Most franchisees would believe that if they perform well, they can expect their agreements to be renewed on reasonable terms when they expire, and not have their business turned over or churned to the franchisor or new franchisee."

He said there was a compelling case for the immediate introduction of good faith laws. "What the industry needs now is some firm guidance and a sense of certainty from the Government about when it will be introducing these provisions, and the sooner the better," he said.


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Risks: Renewal of contract denied, Australian Competition and Consumer Commission, ACCC, Churning (serial reselling), Renewing contract much tougher, Fair dealings: treat assets as if they were their own, Australia, 20080519 Hungry Jacks

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