Emerson faces flak on franchise changes

…he agreed some of the changes "looked promising", such as naming and shaming, the ACCC had already indicated it had enough powers to do its job. "If its new powers results in greater scrutiny it would be excellent, but with Emerson the devil will be in the application of the detail," Mr Randall said. Mr Randall said the ACCC always underspent its budget on taking test cases and more need to be done there. "They've been very reluctant to drill down to specific individual cases."

http://www.watoday.com.au
November 6, 2009

Emerson faces flak on franchise changes
Chalpat Sonti

He might have finally acted on changes to one of Australia's most troubled industries, but that hasn't stopped Federal Small Business Minister Craig Emerson from criticism from within his own party for his efforts.

Dr Emerson yesterday announced changes to the $128 billion-a-year franchising industry's code of conduct, 11 months after a joint parliamentary inquiry handed down its recommendations.

Those recommendations - which had bipartisan political support - including pecuniary penalties for breaches of the code and the inclusion of a good faith provision when negotiating agreements.

Dr Emerson sidestepped those recommendations, instead announcing penalties of up to $1.1 million for unconscionable conduct, and powers for the Australian Competition and Consumer Commission to conduct random audits and "name and shame" rogue franchisors.
While the code will be changed to deal with end-of-term agreements and dispute resolution procedures, many other issues raised by the inquiry have been referred off to an "expert panel" to consider.

That means yet another inquiry for the industry, which has already seen the WA and South Australian parliaments conduct their own investigations.

South Australian Labor MP Tony Piccolo, a critic of his federal counterpart's handling of the federal inquiry, said yesterday's announcement did not go far enough.

"They're certainly a step in the right direction but they don't deal with some of the critical areas," the long-time franchisee advocate said.

The main one was the need for the good faith provision.

Dr Emerson said a good faith provision was not clearly defined in law and could have "adverse commercial consequences" for franchisees.

But Mr Piccolo disputed that.

"Good faith has to happen. Two reasons for that - both the state and federal inquiries recommended it and secondly, it's ALP policy, so there should be no drama," Mr Piccolo said.

There also needed to be a franchising ombudsman to ensure affordable access to dispute resolution for franchisees, many of whom had lost everything by the time they tried to take action against franchisors.

Penalties for unconscionable conduct would achieve little.

"That's a problem. To prove that in court, the bar is set very high. There needed to be penalties for breaches of the code, which was recommended in both (the federal) and state inquiries," Mr Piccolo said.

He would push ahead with a state law, which was in the process of being drafted, and which he believed would be followed by similar legislation in other states.

"Once our state moves, I think you'll see both Queensland and WA will move as well. It's not desirable to have state rather than federal laws but in the absence of leadership federally, state parliament's have to act."

Another long-time franchisee advocate, WA federal Liberal MP Don Randall, said Dr Emerson had been embarrassed into taking action and his changes "pulled their punches".

"He's squibbed on good faith," Mr Randall said.

"That's a good out clause for rogue franchisors. He's talking about end-of-term agreements, but what about the promises made to franchisees at the start? There appears to be no mechanism to make sure (franchisors) are being honest and transparent when they get a new franchisee looking to enter into a business.

"It's disappointing because this was an opportunity to really make a difference and give comfort to those in small business who were really hurting and being done over."

While he agreed some of the changes "looked promising", such as naming and shaming, the ACCC had already indicated it had enough powers to do its job.

"If its new powers results in greater scrutiny it would be excellent, but with Emerson the devil will be in the application of the detail," Mr Randall said.

Mr Randall said the ACCC always underspent its budget on taking test cases and more need to be done there.

"They've been very reluctant to drill down to specific individual cases."

Franchising expert Frank Zumbo, an associate professor of business law at the University of NSW, said the changes fell "well short" of what was required.

"Good faith is integral to good franchising and it's disappointing that (Dr Emerson) has failed to recognise the link," Mr Zumbo said.

Dr Emerson's decision to amend the code to provide that nothing in it limited any common law requirement of good faith would not achieve anything.

"It can still be removed by explicit reference in their franchise agreements," Mr Zumbo said.

The decision not to impose pecuniary penalties for breaches of the code would give rogue franchisors the "green light" to continue breaching it. While there were penalties for unconscionable conduct, there was no definition of this in the Trade Practices Act.

"The laws against unconscionable conduct are next to useless as the courts have given those laws an extremely narrow interpretation," Mr Zumbo said.

And he questioned the need for yet another inquiry by the expert panel.

"Establishing another inquiry to go over the same ground that three previous inquiries have covered is a waste of time and money and represents another unnecessary delay, costing the sector dearly," Mr Zumbo said.

"(Dr Emerson's) delay will play into the hands of rogue franchisors."

http://www.watoday.com.au/small-business/franchising/emerson-faces-flak-on-franchise-changes-20091106-i0zv.html


Brought to you by WikidFranchise.org

Risks: Abuse of business, regulatory & political authority can destroy people, Australian Competition and Consumer Commission , ACCC, Bad faith and unfair dealings, Blocking for the industry, Devil is in the details & franchisors have much more political influence v. franchisees, Franchisor fails and consumers lose millions, Have needed more statistics for +30 years, Illusion of government oversight, Imbalance of information and power, Industry likes this regulator, Ombudsman, Ombudsman, funded by franchisors & suppliers, Public perception of sleaze and greed, Public service as a high calling, Regulator already has enough power but they don't use it, Regulators only pick on franchisors who can't defend themselves, Regulatory capture breeds its own incompetence, Reputational risk, Shame or stigma, Should anyone trust anything associated with franchising anymore?, Symbiotic relationships (industry, banks, lawyers), Vacuum of information favours dominant party, Universities provide unbiased expert knowledge and pursue objective truth, Australia, 20091106 Emerson faces

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License