Coalition review of Franchising Code could see penalties hit $50,000

The federal government will pick up where the former Labor government left off when it comes to reviewing the franchise sector, with the potential for penalties of up to $50,000 for breaches of the Franchising Code of Conduct.

Small Business Minister Bruce Billson told SmartCompany this morning “the Coalition advocate penalties to help enforcement of the code”. 

In 2013, the Wein review of the Franchising Code of Conduct made 18 recommendations to update it, which were not implemented due to the federal election.

“We welcome the Wein recommendations, after urging the previous government to take action on the code for many years,” Billson says.

Billson says the federal government wants to ensure that franchisors who breach the code face consequences; that franchisees which are harmed have the resources to seek remedy; and that there is a nationally consistent regulatory framework rather than a fragmented state-by-state approach.

The franchise sector has been regulated by the compulsory code since 1998, but to date it does not include penalties for breaches.

Billson says the Coalition is “working as we speak” to ensure that changes are made, with a regulatory impact process expected to be completed by mid-year.

He says the potential fines of $50,000 will be for “serious but less egregious” breaches of the code, while there will still be full legal avenues and major fines for those found to be conducting “egregious” breaches.

Billson says the aim is to ensure a level playing field for franchisor and franchisee.

Franchise Advisory Centre principal Jason Gehrke told SmartCompany penalties are less about the treatment of franchisees, and more of a matter of adhering to the code.

For example, Gehrke says if a franchisor fails to give a disclosure document, a fine could be relevant.

“What would be a concern is the extent of the fine and the cause of the penalties – if it is an innocent or insignificant breach, a fine could be disproportionate,” he says.

“If they are required to provide a list of franchisees, and that list doesn’t include the franchisees that just joined the network, or if there are franchises in a state of transition, with one being sold to another, that inaccuracy could result in a fine.”

Gehrke says most franchisors won’t be worried about the potential of penalties, as most adhere to the legislative requirements implemented in 1998.

“Most are not concerned about fines, providing the extent of the fines or penalties are limited, clear and unambiguous,” he says.

Gehrke says that as part of the Coalition’s pre-election policies, it also promised to take a “root and branch” review of the competition law policies.

“Anything from the Wein inquiry that is adopted, they would want to make consistent with the competition law reviews,” he says.