Frank Zumbo.
Proposed changes to Australia's franchising industry will do little to help those at greatest risk of failure, the man at the forefront of the push for change says.
The changes, announced yesterday by federal Small Business Minister Craig Emerson, follows state inquiries in WA and South Australia, a joint parliamentary inquiry into the franchising code of conduct and a parliamentary inquiry into the unconscionable conduct provisions of the Trade Practices Act.
They include the provision of a "plain English" document for franchisees setting out their rights and responsibilities, as well as changes announced earlier, including penalties of up to $1.1 million for unconscionable conduct, and powers for the Australian Competition and Consumer Commission to conduct random audits and "name and shame" rogue franchisors, while the code will be changed to deal with end-of-term agreements and dispute resolution procedures.
Other recommendations made by an expert panel set up to consider the code and unconscionable conduct included changes to unilateral contract variations, unforeseen capital expenditure, attribution of legal costs, confidentiality agreements and the sale of the business.
Dr Emerson called the changes the "most sweeping reform" of the troubled $130-billion-a-year industry's code of conduct.
"The changes would enable the ACCC and the courts to take strong action against business operators who bullied, harassed or coerced others in a weaker position," he said.
But franchising expert Frank Zumbo, of the University of NSW, said the changes - which do not include the provision to negotiate in good faith that advocates for change have long called for - amounted to little more than "window dressing".
"(Dr Emerson) is again offering spin and no effective action on issues of concern to small businesses and franchisees," he said.
"The existing unconscionable laws, for example, have long failed to stop unethical conduct by unscrupulous big businesses and franchisors towards small businesses and franchisees," he said.
Courts had a narrow interpretation as to what constituted unconscionable conduct, and all the government was doing was providing so-called "interpretative principles" to help interpret existing laws.
"They will simply outline what the courts have already told us," Mr Zumbo said.
"Even the buck passing suggestion that the ACCC should be taking more test cases is flawed and ill conceived. It's clear that additional test cases will not be telling us anything new."
Changes to the franchising code would do nothing to prevent rogue franchisors.
"Despite ample evidence that rogue franchisors act inappropriately, the federal government is only proposing to provide for some minor additional disclosure and to give franchisees more guidance on the nature of franchising.
"The problem with disclosure is that it's not a magic bullet. All too often there is considerable wriggle room in the wording... that allows rogue franchisors to get away with inappropriate behaviour."
But Bruce McFarlane, head of franchising at Melbourne law firm Hall and Wilcox, said better information for franchisees should lead to less disputes "and that's a good thing for the franchising sector overall".
"However, this needs to be balanced by the amount of information that franchisors are required to provide, so it's not too onerous a task," he said.
"No matter what reforms are put in place or initiatives undertaken, the law cannot protect business failure absolutely. Ultimately franchisees need to do their own due diligence and seek their own independent advice."
Franchise Council of Australia executive director Steve Wright said the changes were "good news for franchisees and franchisors".He welcomed both the government decision and the expert panel's findings "and we strongly enforce the government confirmation of its November announcement that it does not intend to adopt the onerous new franchising rules which were suggested in the joint parliamentary inquiry".
"The measures are about further enhancing franchisee confidence without the need for onerous compliance obligations or confusing rule changes which would do nothing but undermine investment in the sector and, ultimately, hurt both franchisor and franchisee," he said.
