SA Government backs new franchising laws, will introduce “good faith” clause

The South Australian Government will back a private member’s bill from franchisee crusader Tony Piccolo and will introduce new franchising laws that will enshrine “good faith” bargaining in legislation for the first time in Australia.

Piccolo, who has been pushing for the new laws for more than two years, finally managed to get his private member’s bill approved by the Rann Labor Government’s Cabinet last week.

The new state franchising laws, drafted with by Piccolo and competition law expert Frank Zumbo from the University of New South Wales, have been designed to “complement” the national Franchising Code of Conduct.

However, there are three main differences.

Firstly, a new Small Business Commission will be introduced to assist with dispute resolution.

Secondly, the laws would impose financial penalties of up to $100,000 for breaches of the Code.

Finally – and most controversially – the law will require franchisors and franchisees to act in “good faith” in all dealings.

The inclusion of a “good faith” clause in franchising laws has been one of the most hotly-debated topics in franchising for the past five years and has been promoted by franchisee advocates as a way of preventing end-of-term disputes whereby a franchisee is left disgruntled and ripped off at the end of a franchise agreement when the franchisor decides not to renew their agreement.

However, the Franchising Council says good faith is already implied in the Trade Practices Act and therefore does not need to be expressly added to the Franchising Code.

Last year, then-small business minster Craig Emerson decided not to introduce “good faith” requirements into the Franchising Code.

Piccolo says this left him no choice but to push on with his own Bill.

“The good faith dealings I believe are important, because it stipulates the workings of the business relationship,” he told SmartCompany.

“The franchise agreement is a different type of agreement than a normal business relationship, and needs to reflect that.”

“Many franchisors find it more profitable to turn their franchisees over and open new ones, but good faith agreements mean you cannot act in a way that will be a determinant to your franchisees. And that works both ways.”

The Franchising Council remains bitterly opposed to Piccolo’s bill and has repeatedly warned the bill would make it unattractive for franchisors to do business in the state if South Australia goes it alone.

In June, the Council released data showing 95% of franchisors want one, national set of rules for the sector.

FCA chief executive has called for Federal Small Business Minister Nick Sherry to “make it clear” to SA Premier Mike Rann the potential problems with the Bill.

“For good reason, the Federal Government has rejected past calls for the type of changes now being mooted in SA.”

“Businesses will run away from investing in a State where they could be fined up to $100,000 for being unable to disprove a subjective allegation made against them and be denied the right to get professional help to defend themselves.”

“Add to that judgment by a single individual without any need for qualification or experience of franchising, and no right of appeal, and you have a classic kangaroo court.”

Given Labor has a clear majority in the lower house of the South Australian Parliament, the Franchise Council’s best hope of blocking the legislation could be to lobby upper house members.

Labor has eight of the upper house’s 22 members, while the Liberal Party has seven. This means Labor will need to win the support of a combination of members from the Greens (two members), Family First (two members), the No Pokies party (two members) and the Disabilities with Dignity Party (one seat).

The South Australian Government expects to release the draft Bill for industry and community consultation by the end of this year, with the Bill to be introduced to Parliament early next year.