How to tell when your business is suitable for franchising
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The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell said recommendations in the report on the inquiry into franchising addressed the concerns raised by her office in submissions and consultations with small business franchisees.
“Franchisors continue to breach the ‘good faith’ obligation of the Franchising Code of Conduct and include unfair contract terms in franchising agreements without penalty, further entrenching the power imbalance between the franchisee and franchisor,” Ms Carnell said.
At the moment, the ASBFEO noted that if a franchisor breaches the code, franchisees take no action for fear of repercussions, such as losing their franchise agreement. If they do go to mediation, the franchisor brings a legal team, while the franchisee is often unrepresented and left suffering because of this.
“We agree all franchise agreements must comply with unfair contract term legislation; the majority of calls my office receives from franchisees are seeking assistance in a contract dispute. The committee’s recommendations to make penalties significant and charging the ACCC with investigating standard form contracts and applying penalties where a contract contains an unfair clause will greatly improve the position of franchisees in their dealings with franchisors,” Ms Carnell said.
The ASBFEO has welcomed the recommendations to provide detailed financial and performance figures, workplace relations commitments and other key data to help make an informed decision to become a franchisee. It stated that recommendations to ensure discounts on bulk buying negotiated by the franchisor are accessible to its franchisees should address this inherent poor behaviour.
“Having recently taken on the function of assisting franchisees with disputes, we welcome the dispute resolution clauses being strengthened,” Ms Carnell said. “We support reforms to include arbitration where mediation has proved unsuccessful so that small businesses can continue to access lower cost, timelier dispute resolution services.
The ASBFEO has noted the committee’s recommendations to address issues raised by new car dealers. The Ombudsman hopes that these will guide the consultation currently being conducted by the government to mitigate the power imbalance between manufacturers and dealers.
“To ensure the issues raised with my office and the committee are comprehensively addressed, we agree that an inter-agency taskforce of government agencies should be set up to ensure a coordinated and comprehensive response,” Ms Carnell concluded.