Federal Government launches inquiry into franchising industry

Just weeks after the collapse of the Kleins franchise chain, Federal Parliament has announced an inquiry into the franchising code of conduct.

Just weeks after the collapse of the Kleins franchise chain, Federal Parliament has announced an inquiry into the franchising code of conduct.

The Parliamentary joint committee on corporations and financial services will examine the operation of the code and look at ways it could be improved. The terms of reference sets out four areas to be examined:

• The nature of the franchising industry, including the rights of both franchisors and franchisees.
• Whether an obligation for franchisors, franchisees and prospective franchisees to act in good faith should be explicitly incorporated into the code (having regard to its presence as an element in the Trade Practices Act).
• The interaction between the franchising code and the Trade Practices Act on the issue of unconscionable conduct.
• The operation of the dispute resolution provisions under the code.

Submissions will be taken until 12 September and the committee will report by 1 December. (Details about lodging submissions can be found at the committee’s website).

But Frank Zumbo, an associate professor at the University of New South Wales who supports the inclusion of good faith and unconscionable conduct provisions in the franchising code, is disappointed the Federal Government has decided to go ahead with another inquiry after comprehensive franchising inquiries earlier this year by the West Australian and South Australian parliaments.

His is particularly disappointed that the federal inquiry will not report until December. “With Christmas and holidays we many not see a response until mid next year. The problems are happening now and they will grow in the meantime,” Zumbo says.

“It shows that dealing with franchising issues is not a priority for this Government. Franchisees in particular are missing out on having these laws that could create a better environment for franchising to prosper.”

The chief executive of the Franchise Council of Australia, Steve Wright, is concerned that this inquiry will go over the same ground as the WA and SA inquiries. He also points out that a federal franchising inquiry was conducted in 2006-07 and changes to the franchising code coming out of this inquiry were only implemented in March. “That’s pretty recent history,” Wright says. 

He also has some reservations about the first term of reference for the inquiry, which talks about th nature of the franchising industry.

“We’re a little bit concerned that the first item to be addressed is extremely broad and could take us down a multitude of paths. That may be a strain on people’s resources and may or may not lead to the best possible outcome. ” 

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