Intent versus extent: The wolf in sheep’s clothing in South Australia

The future of uniform franchise regulation in Australia is hanging by a thread as a handful of independents and minor parties which control the balance of power in the South Australian upper house decide the fate of SA’s Small Business Commissioner Bill.

If the Bill is passed in its current form it will give the SA business minister the power to prescribe industry codes of conduct – such as the existing Franchising Code of Conduct under the Competition and Consumer Act – and then make changes that would only apply in South Australia.

In doing so that would change the level playing field in which the franchise sector has flourished since the franchising code was introduced in 1998 and put South Australia out of step with the other states.

The flow-on impact to the franchise sector is that increased compliance and risk management costs will increase business costs and reduce South Australia’s desirability as a place in which to grow franchise networks.

The problem with the SA Small Business Commissioner Bill is not its intent but its extent.

The idea of a small business commissioner providing rapid and low cost dispute resolution services like the existing Victorian model is widely lauded.

But the SA Government and in particular Business Minister Tom Koutsantonis has attempted to conceal in rhetoric and wordplay the vastly increased powers of a South Australian commissioner above and beyond his Victorian counterpart.

For example the SA Small Business Commissioner Bill does not make use of the words “franchise” or “franchising” in its text, which could fool some into believing that the franchise sector is not affected.

In separate press releases in July and August, Koutsantonis and parliamentary colleague Tony Piccolo stated that franchising will be covered by the Bill.

In other words the Bill itself is a wolf in sheep’s clothing, dressed to conceal the extent to which it can function by giving the appearance of helping to resolve disputes, but in doing so it arms the commissioner with a metaphoric baseball bat to bludgeon the living daylights out of any industry to which the minister prescribes a code.

And right now the number one industry in the Minister’s sights is franchising, which has been the case since December 2009, when Tony Piccolo tabled a private member’s bill on the last day of parliament to regulate franchising before the 2010 SA state election.

That bill lapsed due to the election process but the desire to create further rules to benefit members of Piccolo’s electorate remained and a new opportunity was created when Koutsantonis was later elevated to the role of business minister.

Koutsantonis and Piccolo served together on the SA parliamentary committee which in 2008 conducted an inquiry into franchising in South Australia. That inquiry concluded that franchising was best regulated at national level and made 21 recommendations for federal changes as well as an additional five recommendations for implementation by South Australia along the lines of education for people before buying a franchise, improved data collection and so on.

Of the five recommendations from that inquiry that the SA government could enact only one has been implemented – even after Koutsantonis (one of the inquiry’s authors) – was subsequently appointed to the business ministry and perfectly poised to bring the recommendations into being.

The most significant of those recommendations was that the SA government “… provide educational information (including access to seminars) relating to franchising … (for both franchisees and franchisors)… should be provided to all businesses at the initial registration phase and regularly during the life of the business”.

The key recommendation to better educate franchise sector participants has remained unactioned in the three years since the SA inquiry and is overlooked by the Small Business Commissioner Bill.

It begs the question that if education for business entrants was considered so important why has the South Australian Government done nothing about it and why does the Small Business Commissioner Bill fail to address it?

Perhaps in their haste to orchestrate Orwellian controls over sectors of the South Australian small business community the authors of the Bill simply forgot that education can be one of the most important tools to reduce business disputes by getting people to understand from the outset the risks and the contractual obligations often involved when going into business.

It seems that something so fundamentally basic to the role of a small business commissioner as education has been overlooked in the haste to create an omnipotent bureaucracy that can take a big stick to any business sector at the whim of the minister to prescribe an industry code.

It may be too much to expect that the handful of independents and minor party politicians in the SA upper house who will determine the fate of the Bill will see the full implications of what has been proposed.

Lobbying by groups such as the Franchise Council of Australia, the Law Council of Australia and the Law Societies of Queensland and South Australia has evoked divided responses.

Proponents of the Bill argue that those groups are pushing their own vested interests – that the Franchise Council is only interested in the “big end of town” when in reality most of its members are easily defined as small businesses themselves or that the lawyers are protecting their members, who will lose fees to the dispute resolution work of the commissioner.

That latter claim is laughable. The legal groups are simply arguing the eminent common sense of maintaining uniform laws across the nation. Lawyers around the country are already advising franchisor clients to defer any expansion plans to South Australia until the status of the Bill is resolved.

In reality should the Bill succeed in its current form every franchisor with operations in South Australia will be flocking for legal advice and that will create a bonanza for lawyers.

Despite the rhetoric from the South Australian government and others who conveniently fail to declare their involvement with the proposed Small Business Commissioner Bill it must be acknowledged that the Bill can and will have severe consequences for the business community because of its extent via the ability to prescribe industry codes.

The intent of rapid and low-cost dispute resolution should be applauded but the Bill should not mix dispute resolution and the unfettered prescription of industry codes.

The upper house parliamentarians who will determine the Bill’s fate should be encouraged to amend or remove that part of the Bill dealing with industry codes or resolve to have the Bill properly assessed by way of a parliamentary committee and an accompanying regulatory impact statement.

The intent of the Bill is one thing. The extent of its coverage now and in the future is quite another and for that reason those who hold the balance of power in the SA upper house need to be alerted to the wolf dressed in sheep’s clothing.

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for nearly 20 years at franchisee, franchisor and advisor level.

He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia, and publishes Franchise News & Events, a fortnightly email news bulletin on franchising issues and trends.