Following an avalanche of negative press highlighting franchisee exploitation, the Australian Senate released its report into the franchising sector earlier this year recommending sweeping changes to the code.

“root out misconduct and exploitative behaviour”

The Committee’s 369-page report, “Fairness in Franchising” calls on the government to implement its recommendations, affecting the $170 billion scandal-ridden franchise sector.

In a nutshell, the report identifies systemic poor conduct and exploitative behaviour resulting in a range of recommendations including new and higher penalties for any breach and more responsibilities and greater enforcement powers to ACCC to “root out misconduct and exploitative behaviour” in the franchise sector.

Why is this happening?

Wage fraud in the sector is ripe, often a consequence of franchise business models characterised by high fees, royalties and harsh terms, designed to pour money into the franchisor’s pockets, pushing franchisees to cut corners to remain afloat.

There have been 17 inquiries into the sector over the past 30 years but none have addressed the basic problem of power imbalance between the franchisor and franchisee which has been abused in many cases, including forcing franchisees to sell products at below cost

Senator John Williams, who made a strong call for the inquiry in the first place, was shocked at what was uncovered. “It was worse than expected. It was like the royal commission into banking,” he said.

What are the key recommendations?

The Committee made 71 recommendations, but here are some of the points that may have great implications for the sector;

• The Unfair Contract Terms (UCT) laws to be widened to protect franchisees irrespective of size
• Penalties for including unfair contract terms in franchise agreements.
• Forcing Franchisors to disclose supplier rebates, profit margins and marketing expenditures
• Changes to cooling off periods
• Cooling off also to apply to transfers and renewals,
• Provide power to franchisees to negotiate a collective bargain
• Provide a right for franchisees to terminate an agreement without liability in certain circumstances
• Restrict franchisors from exercising rights to terminate an agreement in certain circumstances
• Higher penalties for breaches of the Code

The Government will now consider the recommendations contained in the report and is likely to push towards implementation.

What remains to see, is how far the Government will go…

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