FCA compromises for regulatory certainty and unified national regulation

Stephen Giles, Deputy Chairman, Franchise Council of Australia

This article appears in the July/August 2013 issue of Business Franchise Australia & New Zealand

The Franchise Council of Australia has compromised on the key issues of good faith and increased penalties for the ACCC in the hope that all stakeholders will now unite behind a consistent national regulatory framework for the franchise sector.

The Federal Government’s Expert Report 1 has endorsed franchising and suggested several improvements to the Code. The FCA has welcomed the outcomes and recommendations of the review of the Franchising Code of Conduct conducted by franchising expert Alan Wein.

Good faith and ACCC penalties have been contentious issues, and the FCA has consistently made the case that there is no evidence or factual basis to justify further regulation. Nevertheless perception can be reality in franchising, and it is vital that potential franchisees and the public can have full confidence in the sector. The spectre of additional State franchise legislation was an evil to be avoided at all costs. Accordingly the FCA in its submission to the Wein review supported the express  inclusion of the common law duty of good faith into the Code. After discussions with the ACCC, the FCA also supported the ACCC’s request for greater enforcement powers. In subsequent discussions with the Federal Government and the Federal  Opposition the FCA has continued to press for a bi-partisan approach and a single national regulatory framework.

The decision to support good faith and ACCC penalties makes it extremely difficult for State Governments to justify any regulatory intervention at a State level. The Wein Report noted that submissions to the Review were overwhelming in their support  for the retention of a single, national regulatory scheme, commenting that “evidence clearly indicates that a national system reduces duplication, red tape, uncertainty, compliance costs and ensures franchisors are in the best position to develop and maintain an effective national business model”.

The Wein Report has rejected calls for mandatory extension of franchise agreements, and compensation at end of the franchise term. Similarly the Report has adopted the FCA’s suggestion for the incorporation of the common law duty of good faith  into the Code rather than some new and different definition of good faith.

The review of the Franchising Code of Conduct was the most comprehensive since its introduction in 1998. Pleasingly, it found that the Australian franchise sector operates well, and the Franchising Code of Conduct is “a robust model” and “generally operates effectively within a very dynamic and difficult economic environment.”2 The Report notes the relatively low levels of complaint and disputation in the sector. The Wein Report contains a total of 18 recommendations to government. Wein notes  that “No recommendation has been made that franchisees receive an exit payment or goodwill payment at the end of the term of their franchise agreement,” as “this would interfere with fundamental principles of contract and property law.

However, a recommendation has been made relating to the use of restraint of trade clauses in the context of franchisors not renewing franchise agreements in certain circumstances.3 The Franchise Council of Australia has cautiously supported the  vast majority of the 18 Recommendations, noting that it is important that the actual amendments to the Code are carefully drafted to reflect the reasoning contained in the Wein Report and avoid any unintended or unreasonable consequences. The  FCA still considers that there would be value in enabling the Australian Competition and Consumer Commission to grant exemptions from strict Code compliance or modify Code compliance requirements, as the franchise model is applied across a vast array of different businesses and industries.

The FCA is keen to continue to work with Government on the detail of the Code amendments, including the recommended clarifications and changes to the Code included in Appendix D to the Wein Report. These clarifications and changes largely reflect contributions made by the FCA’s Legal Committee as part of the FCA’s submission.

1“The Wein Report” is the Alan Wein Review of the Franchising Code of Conduct: Report to the Hon Gary Gray AO MP, Minister for Small Business, and the Hon Bernie Ripoll MP, Parliamentary Secretary for Small Business.
2 Letter from Alan Wein 30 April 2013 to the Minister and Parliamentary Secretary, Wein Report, page i
3 Wein Report Executive Summary page vii

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