The Abbott government's new franchising code seeks to adjust the power imbalance between small franchisees and their franchisor masters, and franchise companies will be fined up to $51,000 for breaches of the new franchising code.
The government has recently released draft legislation and regulations to change the Franchising Code of Conduct following a 2013 review into an industry that employs more than 400,000 people in 73,000 franchisee businesses and 1180 franchisors.
The Australian Competition and Consumer Commission will be given more powers to investigate bad behaviour, issue infringement notices and use its audit powers to demand franchises' paperwork.
Franchisors will no longer be able to improperly interfere with prospective franchisees' ability to speak with ex-franchisees about their experiences.
The industry code that has been regulating the industry since 1998 does not include penalties, which displeased franchisees. Those who complained did little to discourage bad behaviour.
The new regulations would improve transparency of marketing funds requiring franchisors to provide information on its marketing expenses. They would also be required to keep marketing money separate from the rest of their finances, and allow franchisees to vote on an audit of franchisors' marketing budget.
The new code will also require franchisors to disclose their online trading activities and the potential impact on the business of their traditional store franchisees.
An imbalance of power is a well known complaint by franchisees because franchisors tend to be better resourced, have an in-depth understanding of the business and often an advantage in contract negotiations.
The Coalition is concerned with the South Australian government's decision to offer more protection to franchisees against unfair conduct by their franchisors. Industry experts say that has led to jurisdiction shopping by national franchises looking for more favourable states to conduct legal action.
The Coalition's version of the Code of Conduct will include an obligation to act in good faith.
The industry found consistent evidence of questionable behaviour by both franchisees and franchisors. Franchises are usually in a stronger financial and legal position than the franchisee who can be unreasonably hurt by their headquarters.
"On the other hand, due to the network nature of franchising, poor conduct by isolated franchisees can affect the reputation of the system as a whole," the government said.
The government is relying on the "good faith" clause to improve conduct in the industry and ensure both parties act honestly, cooperatively and not arbitrarily. The proposed changes strike the right balance between the needs of franchisors and franchisees and the unique nature of the relationship between the two.
If you would like to know more about franchise regulations or are interested in becoming a franchisee, contact us now on 02 9299 7044.