Franchise Council survey slams push for new franchising laws in South Australia

"There's a bit of a scare campaign being mounted by the FCA. I understand that. But if a franchisor is compliant with the Code, they have nothing to fear from the South Australian legislation."

http://www.smartcompany.com.au
June 7, 2010

Franchise Council survey slams push for new franchising laws in South Australia
James Thomson

South Australian MP Tony Piccolo is expected to push ahead with his plans to introduce tough new state-based franchising laws, despite a survey from the Franchise Council of Australia showing 95% of franchisors want one, national set of rules for the sector.

Piccolo, who has been a long-time advocate for franchisee rights, has drawn up a private members bill that would see a specific requirement for franchisors and franchisees in the state to act in "good faith", plus higher penalties for breaches of the Franchising Code and a new conflict resolution process. The bill will also create a new office for a Commissioner of Franchising.

But the Franchise Council survey shows stiff opposition to the new laws within the sector.

In addition to the large proportion of FCA members who are against state-based rules, 84% of respondents said the proposed rules would detract from the value of franchise systems in South Australia, while almost 80% said the news laws would "influence their attitudes" towards investment in the state's franchise sector.

Steve Wright, executive director of the Franchise Council, says the survey shows opposition to Piccolo's bill is unanimous among big and small franchisors and the adviser community that works with the sector.

"There is no upside to this legislation – it would be disastrous for franchisors, franchisees and damaging to South Australian economy broadly," he said.

Wright says opposition is particularly strong among franchisees, who feel the uncertainty in the sector could lead to banks increasing their risk ratings of South Australia franchises. This will make it tougher for franchisees to access finance and could also make it harder to sell franchises.

"It would make it harder for small business owners to start franchises in SA, and more difficult to sell them. From our point of view, it is taking South Australia back to the days of the narrow gauge railway."

Wright is also worried about the powers that will be handed to the new Commissioner for Franchising, who would be able to make fines of up to $100,000 for breaches of the new rules.

Wright says the FCA collected a petition at its South Australian state franchising conference, which will be presented to the Government.

"We'll be calling on the Premier to reject this bill and declare that the Government does not intend to implement because it is not in the interests of South Australian business."

He has also compared the bill to the Resources Super Profit Tax proposal.

"If they are concerned about the resources super profits tax in South Australia, they should be equally concerned about stamping on future investment in small business, which this bill could do."

However, Frank Zumbo, competition and consumer law expert of the University of New South Wales who helped Piccolo draft the legislation, questions the survey's finding that investment in the franchise sector could fall if the legislation comes into force.
"I actually believe it will make South Australia a more attractive place to invest because there will be clarity on what franchisees can expect and regulatory certainty on what franchisors can expect."

While Zumbo says he would prefer to see federal legislation, he says the new laws will not add new disclosure requirements or administrative costs for franchisors, as the new laws will be "complementary" to the national Franchising Code.

"There's a bit of a scare campaign being mounted by the FCA. I understand that. But if a franchisor is compliant with the Code, they have nothing to fear from the South Australian legislation."

Zumbo argues the South Australian legislation reflects the findings of three recent Parliamentary inquiries into the franchising sector and says the changes are necessary to discourage "rogue franchisors" from abusing their power.

He also believes other states could look at their own legislative changes if there are no further changes to federal laws.

"I drafted the SA legislation as a template for all states."

While Piccolo was travelling this morning and unable to be contacted prior to publication, Wright says the MP is "determined to proceed".

"We're taking this very seriously," Wright says.

Comments

1. written by OzFranchising, June 07, 2010
The legislation to be introduced in South Australia will establish that State as the leading State for quality franchising. In Canada there are 4 provinces utlizing variations of legislation and in the US there are many States that have their own laws. None suffer and in fact they produce healthy and efficient environments that attract greater investment.

2. Stephen Giles
written by Stephen Giles, June 07, 2010
The FCA is right to object to this ridiculous legislation. Not only is it totally contrary to normal common sense to have any form of State legislation in an area of national business already the subject of comprehensive Federal legislation, it contradicts all of the political rhetoric about reducing red tape and compliance costs. And it comes immediately on the heels of a comprehensive Federal review of the sector, and indeed new changes to the Franchsing Code of Conduct that were only introduced last week.

Put in simple terms, Piccolo advocates new unnecessary State regulation and the establishment of a new State bureaucracy, headed by "the Commissioner of Franchising", to do the work already within the bailwick of the SA office of the ACCC and the SA Office of Consumer & Business Affairs. So that is now 3 separate bureaucracies serving the people of SA, doing essentially the same thing! The cost of setting up this new bureaucracy will run to many millions, as it has investigative, judicial, reporting, dispute resolution and advisory functions.
You could find many faults with the legislation, but let us just take one - the new so called "good faith" obligation. The legislation drafted by Mr Zumbo does not have anything to do with good faith as that term is known at law. Rather he has invented a new definition which he has misleadingly tried to characterise as "good faith" to give it undue credibility. Zumbo's definition requires parties “to act fairly, honestly, reasonably and in a cooperative manner”. This is legal nonsense, and goes far beyond the accepted legal definition of “good faith” which the law already would imply into most franchise agreements. If enacted, the new prohibition will render uncertain all franchise agreements, as it will override the wording of the contract. It will create a lawyer’s paradise, as it would not be difficult to portray any commercial action by either a franchisor or a franchisee as “unfair”, “unreasonable” or not occurring in a “cooperative manner”.
And all of this immediately following what the Federal Minister described as the most sweeping reform of the franchise sector since 1998, which take effect July 1, 2010. Piccolo's Bill was introduced in December 2009, before the Federal reforms were announced, and ignores all conclusions of the federal inquiry. Likewise Zumbo's drafting.
This Bill will be consigned to the legislative scrap heap when sensible and fair minder politicians see its detail. Hopefully Smartcompany and others in the media will help hasten this process.

3. Les Stewart
written by LesStewartMBA, June 08, 2010
I am not familiar with Mr. Giles' degrees in public administration or political science or experience in public service, defending franchisees or past parliamentary experience.

Nevertheless, he seems quite willing to denigrate officials who are trying to stick up for the "little guy".

It is my experience that infamous franchisor-only lawyers have a very distorted view of what makes for a "fair" law in any case.

It is re-assuring that money hasn't influenced all commonwealth jurisdictions. Canada has no national franchise legislation, Nor is it likely considering the influence of Big Petroleum, Grocery and Auto.

Blocking for the industry" is what all "alpha franchisor attorneys" do, in Canada and the U.S.

Les Stewart MBA
Midhurst ON Canada
FranchiseFool : WikidFranchise.org : LinkedIn

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