Private bill proposes to lift penalties for franchise sector
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Companies Retail Franchising
Opinion
Private bill proposes to lift penalties for
franchise sector
Labor senator Deborah O’Neill is pushing a private senators’ bill in an
attempt to reform franchising.
Adele
Adele
AdeleFerguson
Ferguson
Ferguson
Investigative journalist and columnist
Feb 22, 2021 – 12.00am Save Share
After a weak government response to a bipartisan parliamentary inquiry that
called for radical reform to the $180 billion franchise industry, Senator Deborah
O’Neill has crafted a private senators’ Fairness in Franchising Bill for listing this
week.
The expectation is enough crossbench senators will throw their weight behind it to
push it across the line in the Senate on Monday. It will then go straight to the lower
house for debate.Senator Deborah O’Neill will this week lob a private senators’ bill in an attempt to reform franchising. Alex
Ellinghausen
It might be the only near-term chance for change in the Franchising Code, after the
government made it clear it doesn’t have the stomach to take it on.
O’Neill, who has been a strong advocate for change, might not be in the next
Parliament if she loses a preselection battle with federal Labor frontbencher
Kristina Keneally.
But O’Neill is realistic enough to know that the bill is a small part of what is needed
to fix franchising, a sector that was described
described
describedin
in
inthe
the
theparliamentary
parliamentary
parliamentaryinquiry
inquiry
inquiry as
operating in a regulatory environment that has “manifestly failed to deter systemic
poor conduct and exploitative behaviour and has entrenched the power
imbalance”.
“This is a finger in a dyke,” O’Neill said.
The bill focuses on two things: lifting penalties to bring them into line with
breaches of the Australian Consumer Law; and giving the Small Business
Ombudsman (ASBFEO) the power to refer cases to arbitration where they are a
party to the franchising code after mediation has failed.
They were two of 71 recommendations made in the parliamentary inquiry review.
The government has been accused of squibbing or diluting some of the more
important recommendations but agreed to address the issue of arbitration. The
problem is, it is yet to introduce the legislation, hence the reason for including it in
O’Neill’s bill.
For O’Neill, things need to move quicker given the upheaval in the car industry
since US car giant General Motors announced last year it was pulling
pulling
pullingthe
the
theHolden
Holden
Holden
brand
brand
brandfrom
from
fromthe
the
theAustralian
Australian
Australianmarket
market.
marketIt left its network of 185 dealerships – franchisees – reeling, with some saying the compensation deal was “inadequate”. Its withdrawal – and treatment of dealers – sparked criticism from Prime Minister Scott Morrison and a parliamentary inquiry into the car manufacturing and dealing sector, which is due to report on March 18. Like the parliamentary inquiry into franchising, the inquiry into car dealerships held late last year reinforced the power imbalance that exists between small franchisees and head office. Another key aspect of O’Neill’s bill is the issue of penalties for breaching the Franchising Code. The bill proposes to increase the maximum fine to $10 million; a key recommendation of the parliamentary inquiry and something the Australian Competition and Consumer Commission supports. That’s the point of a power imbalance: the little guys can’t take on the big guys in court. — Kate Carnell, Small Business Ombudsman It is far more than the planned increase to $133,200, which is too small to be a deterrent in an industry dominated by big franchisors, some listed, some private equity. The bill gives the ombudsman the power to refer cases to arbitration where they are a party to the franchising code after mediation has failed. Such a change would mean any party that didn’t accept an ombudsman arbitration recommendation can be named and shamed. As Small Business Ombudsman, Kate Carnell told Parliament, most disputes never get to court. “That’s the point of a power imbalance: the little guys can’t take on the big guys in court or they’ll be worse off than when they started ... they also rarely settle,
because the big guy’s got all the power.” Arbitration improves the power balance, according to Carnell. “When you put in place a stick–- which is what arbitration is – that if all else fails an arbiter will make the decision, then all of a sudden there’s a reason to settle, a reason to not push this through to the final scenario,” she told Parliament. “So I think it’s not about court; it’s really about pressure to behave in a reasonable manner. Because if you don’t, there’s a stick.” But there is more to be done. The global pandemic wreaked havoc on franchising, as brands across the country including Gloria Jean’s, Michel’s Patisserie and Sushi Sushi closed some stores after years of struggling. “I just closed my store and walked out,” a Gloria Jean's franchisee, who had been struggling for years, decided last year.
Some Gloria Jean’s franchisees simply shut up shop. Jessica Shapiro
For years franchising has been in the headlines for the wrong reasons, with various
scandals and a parliamentary
parliamentary
parliamentaryinquiry
inquiry
inquiryin
in
in2018
2018
2018exposing
exposing
exposingbrutal
brutal
brutalbusiness
business
businessmodels
models
models that
pushed franchisees to the brink of collapse and contributed to rampant wage fraud
of workers to make ends meet.
The current pandemic has amplified distress.
Car dealers are also in pain as some global manufacturers decided to change their
business model, in some cases with little warning.
First General Motors, then Honda, announced plans to move to an agency model
where dealers are paid a commission for selling cars on behalf of Honda, instead of
purchasing the cars and reselling them.
Mercedes-Benz was next, serving up its own plans for an agency model to be rolled
out in 2022.
The power imbalance between dealers and the manufacturers was palpable during
an exchange in Parliament in November when O’Neill asked a Mercedes executive
how many dealers had voted against a shift to the agency model. “It was just over
90 per cent,” the executive said.
O’Neill replied, “Despite the dealers not wanting the change, despite you knowing
that they didn’t want it to happen, you still went ahead with it in February 2020 and
advised them that the new model would be established by 2022.”
The executive continued to dig in, “We have to accept when you introduce new
concepts or a business model there is a likelihood it will not receive full support.”
And despite tweaking the new model, it seems many are still unhappy.
“I can let you know that we are receiving significant numbers of confidential
submissions because people are feeling that they have a lot of money on the line, a
lot of business on the line, a lot of jobs on the line and a lot of reputation on the line,
and they’re more inclined to feel that they need to comply with the large andpowerful entity that provides them with vehicles rather than fight for what they think they want because they feel rather exposed,” Parliament heard. Submissions to the inquiry were also telling, particularly the way Honda handled its new model, including telling some their dealer agreement would be terminated from June 30, 2021. A submission from directors at Astoria Honda Brighton – Honda’s largest selling dealer for 2019 and which has had the dealership in its family for more than 50 years – described the “shock” and “disappointment” when they saw the termination letter. “We have had conversations with other Honda dealers. Many have reluctantly decided to accept their offer because they don’t wish to be involved in litigation and have otherwise been muzzled by an exit deed. “They have advised us that they have also been subjected to intimidatory tactics but have folded as they do not have the appetite to continue.” Important element Deepak Shankar, a principal of Litigation Specialists, who has represented franchisees from a range of franchise brands and systems, said the bill was a good idea given the continuing problems in the sector. He said most franchisors would be brought into line with a penalty of up to $10 million. “A penalty of $10 million would most certainly act as a deterrent to franchisors listed on the ASX who have to answer to shareholders,” he said. Shankar agreed that arbitration was another important element in protecting franchisees, but said by the time it gets to arbitration, it was already getting too late. Co-founder of Franchisee Redress, Maddison Johnstone, who helped expose misconduct in franchise groups including Retail Food Group, said a considerable
problem was the reliance on confidentiality clauses in dispute resolution
processes.
“Confidentiality clauses mask systemic issues, as franchisees are gagged from
sharing their stories,” she says.
“While a positive step, mandating arbitration does not solve the overarching abuse
of power by franchisors and silencing of franchisees in the sector.”
Indeed.
Adele
Adele
AdeleFerguson
Ferguson
Ferguson is a Gold Walkley Award winning investigative journalist. She reports and
comments on companies, markets and the economy. Connect with Adele on Twitter
Twitter.
Twitter Email
Adele at adele.ferguson@theage.com.au
adele.ferguson@theage.com.au
adele.ferguson@theage.com.au
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