Franchisors to feel wrath of South Australian franchising inquiry

At around 2:30pm (AEST) the South Australian Parliament’s Economic and Finance Committee will table its report from an inquiry into franchising laws.

South Australia Labor Party MP Tony Piccolo refused to be drawn on the contents of the report before its release, but he did say the report “would go much farther than the West Australian report”.

On 28 April, a West Australian parliamentary review recommended increased disclosure by franchisors, the imposition of penalties for breaches of the franchising code, and the establishment of a dedicated franchise enforcement unit within the Australian Competition and Consumer Commission.

But the WA report was criticised by Competitive Foods, owned by Hungry Jack’s entrepreneur Jack Cowin. The company said the inquiry report “failed to address the central issue in regards to the bullying tactics being employed by a multinational in taking over an Australian business without any reference to the value of goodwill”.

Piccolo and the committee’s presiding member Tom Koutsantonis have been outspoken during the committee’s investigations.

Last year, Koutsantonis hit out at the “invisible cost” of franchising. ”Often a lot of franchises go broke but the public don’t see it because the franchisor keeps the business going. Franchises are a very risky investment for people who have taken a lump sum (and then left their jobs). We have had a massive response from people who’ve gone broke, from people who have lost everything.”

Piccolo has previously said he has been appalled by franchisee stories of bullying, intimidation and unethical behaviour by franchisors.

Associate professor Frank Zumbo from the University of New South Wales made a submission to the inquiry and is hoping its report will recommend improvements to the franchising disclosure regime. “There are still some gaps in disclosure that need to be tightened up.”

Zumbo would also like to see the introduction of statutory definitions of what constitutes unconscionable conduct, which is being very narrowly defined by the courts, and the introduction of statutory good faith obligations. “We need a statutory duty of good faith that applies across the franchising relationship and particularly within dispute resolution.” He has also recommended the introduction of a franchising ombudsman to act a trouble shooter in disputes.