The Australasian Competition and Consumer Commission has announced laws governing the Franchise Code of Conduct need to be tougher.
In order to “better protect franchisees”, the ACCC says an increase in penalities for breaches and improvements in information disclosure are in the pipeline.
Stronger unfair contract terms (UCT) law will improve the way franchised businesses like dealerships operate in future, says ACCC deputy chair Mick Keogh on Sunday at the National Franchise Convention Legal Symposium in Melbourne.
“We want to see the Franchising Code strengthened, supported by stronger penalty provisions, to ensure franchise systems operate well for all parties involved, to encourage compliance with franchise agreements, and to keep competition on an even keel.”
“Both the Franchising and Oil Codes, which applies to service stations, are not as effective as they could be,” Keogh states.
The ACCC says franchisees are being forced into unfair arrangements with little protection by law.
“The biggest limitation within the current legislation is that unfair contract terms are not illegal,” Keogh explains.
“The worst that can happen under the law is that unfair terms are subject to legal challenge, the Court declares them to be unfair and effectively strikes them out of the contract. But a business does not face a penalty for including them in the first place,” he points out.
The ACCC has addressed the legality of the problem is multi-faceted and encourages wrong-doing.
“So, lacking a legal impediment, and without fear of financial penalties, businesses have an incentive to include potentially unfair terms in their contracts,” he continues.
“We want to see this changed to more adequately protect small businesses, including franchisees.”
Keogh acknowledges the vital homework needed for a franchisee before taking on a business, often requiring independent expert advice.
“It is in the interests of all involved in the sector to have a clear understanding of what is required by law,” he explains, “so that businesses (can) focus on becoming more competitive and growing market share, rather than being tempted to take shortcuts that will ultimately damage the business, but also the reputation of the franchise sector as a whole.”
The Australian Automotive Dealer Association has welcomed the support on behalf of the network of franchised new car retailers currently finding themselves in similar situations Keogh describes.
“We welcome the ACCC’s comments around the need to improve Australia’s franchising regime,” AADA chief executive David Blackhall tells AutoTalk.
“Increased penalties for breaches, extending unfair contract terms to businesses such as new car dealers and a potential collective bargaining class exemption are all initiatives which could better protects franchisees in Australia,” he says.
“We think an industry specific Automotive Code of Conduct should offer a range of safeguards, including issues referred to by the ACCC, such as better disclosure and protection from unfair contract terms,” Blackhall adds.
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