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Australian Small Business and Family Enterprise Ombudsman 4 mins read

The Australian Small Business and Family Enterprise Ombudsman, Bruce Billson, welcomes the Australian Government’s response to the review of the Franchising Code of Conduct by Dr Michael Schaper.

The Minister for Small Business, Julie Collins, has announced that the Government has accept Dr Schaper’s recommendations including for the Ombudsman to lead work to improve standards of conduct in franchising by developing best practice guidance and education, and to improve the comparability and publication of franchising data sets.

The Ombudsman will also be given the power to name and shame franchisors who have not participated meaningfully in alternative dispute resolution – a move that will hopefully discourage big business from using their muscle to force time and resource-poor small business to have no alternative but to take them to court.

ASBFEO’s existing service that provides small business with low-cost legal advice about disputes with the Tax Office will also be expanded to cover initial advice about franchising disputes.

“These changes are a natural extension of our existing role and an opportunity to promote good behaviour and shared success in this dynamic sector of the economy by encouraging exemplar and best practice,” Mr Billson said.

“Almost 10 per cent of the business disputes that come to our agency involve franchising and we have valuable insights on the points of difference and tensions that can lead to conflict between a franchisor and franchisees.

“We need to have the right balance between regulatory safeguards and conduct expectations for franchisees and franchisors while providing for incentives for businesses to invest, develop, take risks, boost productivity, innovate and share success in franchise partnerships.”

The franchise sector is worth $135 billion and employs more than half a million people. There are some 70,700 franchisees in Australia and almost all of them are small businesses, as are some franchisors.

The Government said it will amend legislation to provide ASBFEO with the power to name franchisors who have not participated meaningfully in alternative dispute resolution.

“This will mean big businesses in a dispute with a small business will have to think about the reputational damage to their brand name by using their muscle to force a small business to have no alternative but to seek redress in court – an expensive and time-consuming pathway they almost always cannot afford to take,” Mr Billson said.

“At present we can only use this name and shame power under our Act as it relates to general business disputes, rather than as part of obligations under the Franchise Code. These additional powers should apply to franchisees as well as franchisors as we have had experiences where both sides of a franchise relationship can behave appallingly and refuse to engage in or derail reasonable dispute resolution processes.”

In further recognition that the cost of legal advice can be a deterrent to smaller businesses, the Government is expanding ASBFEO’s Tax Concierge Service to support access to low-cost legal advice on alternative dispute resolution matters.

“This will help franchisees in particular to better understand their dispute, its legal merits, potentially viable remedies and how best to resolve it,” Mr Billson said.

The Government said it will consider further changes as part of the independent statutory review of the ASBFEO dispute resolution services next year and establish a Treasury taskforce to conduct a cost-benefit analysis of introducing a licensing regime for the franchise sector.

“We welcome this,” Mr Billson said. “ASBFEO’s legislation requires a review at least every four years of the way that we operate our assistance function and whether the approaches, tools and resources available to us to resolve disputes are adequate or could be enhanced.

“The concept of a licensing regime is a bold suggestion for a franchise sector that is already more highly regulated here than in other comparable economies and ASBFEO looks forward to contributing to the feasibility work of the proposed taskforce.  

“We believe there is scope in franchising for the Government to consider a non-regulatory approach to activating the existing option for parties to agree to arbitration under the Franchising Code of Conduct by urging franchise systems to pre-commit to binding arbitration where disputes cannot be resolved through alternative dispute resolution. Franchisors that make such a positive commitment to binding arbitration should be allowed to have this recognised in the Franchise Disclosure Register.

“But there also needs to be more effective enforcement by regulators, such as the ACCC, of the Code and other legal protections that already exist, particularly around unfair conduct and anti-competitive behaviour.

“The Government’s response to the Schaper Review further support good and fair commercial relationships in franchising.  In helping with franchising disputes, we are often disappointed when mediation and conciliation does not produce a resolution for both parties.

“Currently, it is only the well-resourced and patient that can further pursue their interests via existing legal channels, unless the regulator steps up and in. This can distort the bargaining position of the parties and willingness to find an early mediate resolution, and is why we advocate for a responsive, affordable and restorative Court-based mechanism that can ensure all parties can benefit from Code protections and legal provisions intended to support fair and reasonable commercial dealings.

“We believe that would be a game changer to deliver the Government’s objective to give people the confidence to enter business relationships and to invest, with the ‘bumper rails’ that aim to ensure reasonable dealing and fair commercial conduct being supported by an affordable and accessible legal process if it is required.

“We look forward to working with the Government, the ACCC, Treasury and the franchise sector in implementing the response to the Schaper Review and the careful considerations this will involve”, Mr Billson said.

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