New SA rules could make it harder to find franchise: FCA

Prospective franchisees will find it harder to secure franchises in South Australia due to tough new dispute rules set to be introduced by the state government, the franchising industry body has claimed.

Steve Wright, executive director of the Franchise Council of Australia, told StartupSmart that the laws will make it harder to buy into a South Australian franchise, as well as lowering the price for franchisees looking to sell their business.

The South Australian government has proposed new regulations aimed at protecting franchisees. The rules will demand ‘good faith’ and ‘fair dealing’ from franchisors and franchisees, with financial penalties for those who breach this.

The dispute resolution process will also be overhauled with state small business minister Tom Koutsantonis claiming that the proposals will “even the playing field” between franchisors and franchisees.

However, Wright has attacked the plans, arguing that they will adversely affect franchisors and franchisees in South Australia.

“This will cause investment to disappear,” he says. “Franchisors will stop investing in South Australia and franchisees will find it harder to find a franchise. Those looking to sell will find it harder and, if they do so, they will have to sell for a lower price.”

“There is no benefit to anyone in this crusade. It will harm the very franchisees that it is meant to help.”

“I’m not saying things can’t be improved, but it’s using a sledgehammer to crack a nut. We agreed a new franchise code on July 1, why not give that a chance to work?”

“It will empower individuals who feel that they are unfairly treated and franchisors will have to disprove an allegation. It’ll be a kangaroo court. ‘Good faith’ is far too vague a term and it risks duplicating the existing Fair Trade Act.”

Countering Wright’s opposition, associate professor Frank Zumbo, franchising law expert at the University of NSW, says: “The South Australian government is to be applauded for standing up for small businesses and franchisees and moving to stamp out rogue franchisors.”

“Sadly, rogue franchisors do exist and give the Australian franchising sector a bad name. Rogue franchisors continue to undermine confidence in the franchising sector by failing to adhere to industry best practice and by effectively behaving as a law unto themselves.”

“The Federal Government and the ACCC have repeatedly failed to stamp out these rogue franchisors thereby giving them a green light to continue to tarnish the sector’s reputation.”