Coalition’s franchising review could mean hefty penalties for franchisors

11 February 2014 Topics: Franchising

New statements by the federal government suggest that franchisors in breach of franchising regulations could soon face penalties of up to $50,000.

Cooper Grace Ward released an alert late last year regarding the federal Labor government’s response to the 2013 Wein review of the Franchising Code of Conduct (Code). The Minister for Small Business, Bruce Billson, has since stated that the Coalition intends to introduce changes to the industry early in 2014 to ‘maintain world-class regulatory support for a crucial part of the economy’.

Billson recently told The Australian Financial Review that the Coalition would introduce some of the Wein review recommendations. The Minister noted his concerns with the power imbalance between small business franchisees and franchisors and stated that ‘there are real pressures in the franchising sector where there’s a heavy dependence [between parties] and it’s not an adult-to-adult commercial relationship’.

The Minister has indicated that the government wants to ensure that:

  1. franchisors face consequences for breaching the Code;
  2. franchisees have resources to seek remedy for breaches;
  3. the red tape in the industry is addressed; and
  4. a national regulatory framework is established, rather than a fragmented state-by-state approach, to prevent jurisdiction shopping and to avoid the current disparity in state-based remedies.

The Minister has also suggested that ‘serious but less egregious’ breaches of the Code by franchisors may result in potential fines of up to $50,000, while larger fines may be imposed for more serious breaches.

Speaking at the National Franchise Convention in October, the Minister committed to working with the Franchise Council of Australia in addressing the Wein recommendations and emphasised the importance of the franchising sector, which contributes $131 billion in economic activity in Australia annually.

The likely effect of any amendments to the Code will be that franchisors will benefit from having a nationally consistent regulatory framework but will have to be careful in their dealings with franchisees to avoid significant penalties.

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