Smoothing the way forward for smaller enterprises

Bianca Sevastos, Partner, Baybridge Lawyers


As many participants in the franchising sector will no doubt be aware, the Federal Government introduced a new Franchising Code of Conduct effective on 1 January of this year in an effort to reduce red tape and redress some of the perceived imbalances in the relationship between franchisors and franchisees.

In what some might see as a further step to achieve these goals, the Government has recently announced plans to transform the role of the Australian Small Business Commissioner into the Small Business and Family Enterprise Ombudsman from 1 July.

While the proposed Ombudsman is intended to benefit all small business owners, franchisees will now have a single entry-point for finding information about services and programs to assist them, for help in understanding their obligations under Federal regulation and another avenue for support in the event that they find themselves in a dispute with a supplier, customer or franchisor.

Small business in Australia is a highly regulated arena requiring business owners’ diligence in relation to tax, wages, insurance and much more. The appointment of the Ombudsman is seen as a move closer to minimising compliance burdens and to “smoothing the way forward for smaller enterprises”. The Government’s deregulation agenda is intended to reduce “regulatory burdens to restore time, focus and resources back to small business owners to invest in the ongoing operation and success of their business”.

What is an Ombudsman?

First established more than 200 years ago in Sweden, the institution of the ombudsman is designed to provide protection for the individual where there is a substantial imbalance of power. Initially, this imbalance was between the citizen and the state but as the institution has developed, it has embraced public, private and independent sectors.

The typical duties of an ombudsman are to investigate complaints and to attempt to resolve them, usually through consultation, negotiation, recommendations or mediation (binding or not). Ombudsman are independent, neutral arbiters and complaints can be made very simply by way of telephone or in writing. Ombudsman offer their services free of charge, and are thus accessible to individuals and small businesses who could not afford to pursue their complaints through the courts or other avenues.

How will an Ombudsman assist small businesses and franchisees?

According to the Government’s Discussion Paper in respect to the introduction of the Small Business Family Enterprise Ombudsman, the key responsibilities of the Ombudsman are to be:

1. Concierge for dispute resolution

If a franchisee has a complaint about a government agency or is unable to resolve a disagreement with a supplier, customer, or its franchisor, the Ombudsman will make preliminary enquiries, consider the merit of the matter and determine the best course of action.

If a matter is more appropriately dealt with by another government agency, the Ombudsman will refer the matter to that government agency. For example, if a franchisee raises an issue regarding unfair trade practices, the Ombudsman will likely refer the matter to the Australian Competition and Consumer Commission whose role is to enforce the Competition and Consumer Act 2010 and promote competition, fair trading and to regulate national infrastructure.

It is proposed that the Ombudsman will develop its own mediation service to assist small businesses, including franchisees, in an effort to “resolve disputes early, in turn improving business productivity, preserving business relationships and avoiding expensive litigation”.

Importantly, the Ombudsman is not intended to replace or duplicate any of the dispute resolution mechanisms provided under the Franchising Code of Conduct, including referring the matter to the Office of the Franchising Mediation Advisor, but simply to act as a ‘triage’ service by undertaking preliminary discussions to determine the most appropriate avenue to resolve the dispute.

It is yet to be determined which dispute resolution services will be offered by the Ombudsman but they could include:

• Providing information and education to small businesses and franchisees;
• Early-stage guided resolution;
• Investigation;
• Conciliation;
• Facilitation of mediation;
• Independent, neutral valuation; and
• Assisted negotiation.

The Ombudsman will be supported by legislated powers which may allow them to:

• Make administrative decisions;
• Investigate small business disputes, including obtaining information from parties; and
• Compel parties to attend mediation before approaching a tribunal or court.

2. Commonwealth-wide advocate for small businesses and family enterprises

It is proposed that the Ombudsman will act as an independent advocate for small businesses and represent their interests to the Government and the broader business community. It is intended that the Ombudsman will identify and report on the administrative burdens and compliance regulations faced by all small businesses in Australia, including franchisees, as a contribution to the Government’s deregulation agenda.

According to the Discussion Paper, “it is expected that the Ombudsman would advocate small business interests with a view to ensuring an enhanced fair and competitive operating environment for all businesses, no matter their size. For example, the Ombudsman could work with industry on the issue of unequal bargaining power and could promote best practice for bargaining and contracts to minimise the inherent power imbalance between larger and smaller businesses”.

3. Contributor to the development of small business-friendly Commonwealth laws and regulations

There is no doubt that business in Australia is highly regulated with many government regulations disproportionately affecting small businesses. The Productivity Commission in 2013 found that small businesses were particularly impacted as “many compliance costs are largely fixed in nature and do not vary with the level of a business’s output, so small business cannot generally achieve economies of scale in compliance”.

The Ombudsman will be tasked with filling a gap at the Commonwealth level by ensuring that legislation and regulations are small business-friendly, thereby reducing the small business owners’ time spent on compliance issues resulting in an uplift in productivity.

4. Single entry-point agency through which Commonwealth assistance and information regarding small business can be accessed

It is proposed that the Ombudsman will be the keeper and ‘central nervous system’ for all information relevant to small businesses, integrating with existing channels and services offered by the Australian Government. The  system is designed to make it easierfor small businesses to access small business programs, as well as support and information to manage and avoid disputes. It is likely that a dedicated website and telephone hotline will be set up to deal with any enquiries by small business owners and the general public.

What’s next?

The legislation to transform the Office of the Australian Small Business Commissioner to a Small Business and Family Enterprise Ombudsman will need to clear both houses of Parliament before it comes into effect on the Government’s proposed commencement date of 1 July.

The impact that the Ombudsman will have on small businesses and franchisees alike remains to be seen, but it is clear that the Government’s intention is to build a strong and confident small business community through reductions in regulatory burdens and by giving time back to small businesses to concentrate on operating and building their businesses. This is likely to represent a positive shift for the franchising and small business sectors as a whole.

Bianca Sevastos, Partner at Baybridge Lawyers, specialises in franchising and licensing and advises on all aspects of franchising industry compliance with the Code.

Bianca has extensive experience and advises on a range of national and international transactions, industry master and area development rights and advises both franchisors and franchisees in dispute, obligations under the Franchising Code of Conduct and the Competition and Consumer Act.

Baybridge Lawyers is a specialist corporate and commercial law firm and a leading authority on all franchise related matters. They are seen as trusted advisors to many brands nationally and internationally.

Phone: 02 9232 3511