Senate inquiry into franchising to go ahead

parliamentThe Senate has voted in favour of an inquiry into the franchise sector that will shine a light on the effectiveness of the franchise code of conduct in the wake of myriad of scandals in the industry.

Moved today by Nationals Senator John Williams, the inquiry will be heard by the Parliamentary Joint Committee on Corporations and Financial Services and will report by 30 September.

It comes after a string of high profile scandals in the franchise sector, from Gloria Jeans and Donut King owner Retail Food Group coming under fire for alleged franchisee exploitation in its network to exposes on wage underpayment within the Caltex, Domino’s and 7-Eleven networks in recent years.

Terms of reference for the inquiry are broad, but primarily related to the Franchising Code of Conduct, which is overseen by the ACCC.

The inquiry will cover the operation and effectiveness of the code, including the adequacy of dispute resolution and termination provisions, as well as the imposition of trading restraints on former franchisees.

It will also evaluate how well the code ensures full disclosure to potential franchisees amid criticisms that the sector lacks transparency.

Franchise Council of Australia (FCA) executive chairman Bruce Billson said he will engage “constructively and thoughtfully” with the inquiry, but complained that the FCA was not consulted on the terms of reference.

“The FCA urged a considered examination of the impact of challenging market conditions on small business and how the franchise model can support the success of small business owners and impact on competitiveness,” he said.

But Brumby’s Bakery co-founder and FCA critic Michael Sherlock has called out Billson for being ineffective at tackling the issues plaguing the $170 billion sector.

“Mr Billson laid the blame on RFG’s problems on landlords overcharging,” Sherlock said.

“Having spent 45 years in franchising I am passionate about the sector and deeply concerned at what has happened in the last few years with the FCA absent in defending the 80% of franchisors who operate their franchise systems in a fair and ethical way and put their franchisees first.”

Sherlock reiterated his calls for changes to FCA membership and board appointment policies, saying that the industry body should be working to expose what he sees as the minority of those in the sector doing the wrong thing.

“Expose the 20 per cent doing the wrong thing, keeping the advertising money for themselves, receiving excessive rebates, charging massive hidden fees by making it compulsory to register franchise deeds and disclosure documents,” he said.

Billson said the FCA supports “informed and thoughtful examination” of the issues facing franchising.

“The FCA encourages all stakeholders in the success of Australian franchising to contribute to the parliamentary inquiry.

“This will assist the Committee to identify the causal factors, including third party conduct by parties outside the franchise relationship, and the role of the franchise business model and its contribution to business viability, when considering cases of poor commercial outcomes.

“This kind of informed and thoughtful examination will help to identify any deficiencies or gaps in the current regulatory framework, unfair contract and fair-trading protections and dispute resolution mechanisms, which the Senate has resolved to be the focus of the inquiry,” he said.

Other stakeholders in the sector have said that they support an inquiry, including franchisee advocates Franchise Redress – who have been investigating claims of exploitation within the sector for several years.

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