The ACCC should be given greater resourcing and the ASBFEO should be given additional powers to improve the franchising sector, according to a new report.
Twenty-three formal recommendations and 34 implementation suggestions have been put forward to government to improve franchising agreements.
The Albanese government has released the Independent Review of Franchising Code of Conduct report – a major review that assesses the Franchising Code (set to sunset on 1 April 2025) and evaluate the overall effectiveness of regulatory frameworks relating to franchise agreements.
Currently, the franchise sector in Australia contains 1,144 franchise systems and some 70,735 franchisees. Collectively the sector employs 522,877 people, turning over an estimated $135.2 billion in 2023, the report found.
More than 1,700 franchise entities were invited to participate in the review’s consultation, with 95 formal submissions received, over 40 meetings and roundtables held, and 544 responses across two surveys.
The main focus of the report was on automotive franchises, but broking franchises are also regulated by the same framework.
It found that while the Franchising Code of Conduct is generally fit for purpose – and should be remade – the review argued that changes are needed to the existing Code provisions to provide better protections for franchisees and improve the broader operating environment.
Moreover, the reviewers found that the size of the franchise sector has not kept pace with the rate of growth in the broader business population and has made a range of recommendations.
The review conducted by Dr Michael Schaper and released on Thursday (8 February) revealed that while many stakeholders in the sector were aware of the role of the ACCC, most considered the regulator to be ineffective in regulating the franchisee sector.
A franchisee survey conducted as part of the review asked respondents to rate how effective the ACCC is in regulating the sector, with the regulator scoring only 3.9 out of 10.
Concerns were expressed by some franchisee stakeholders about alleged widespread non-compliance with the code, although there was no specific evidence provided to the review.
“Franchisees in particular felt that there needed to be a more active approach from the ACCC,” the review stated.
“Many stakeholders acknowledged that the ACCC operates within a resource-constrained environment, with some suggesting the ACCC requires further resourcing or dedicated personnel to pursue noncompliance in the franchising sector.”
The ACCC told the review that it commits a disproportionately high level of resources to franchising enforcement and compliance, given that it also has a wide range of responsibilities in many other parts of the economy and several other industry codes to also enforce.
It also noted that the complexity and ex-post nature of the regulatory model limit its capacity to prevent harm effectively and rapidly.
The ACCC stated that enforcement action, even where taken, often does not result in positive outcomes for franchisees.
Some submissions to the review also called for better communication and promotion of the Code and for the ACCC to provide information targeted at emerging new groups of franchisees.
The review noted that the spread of resources across the ACCC, ASBFEO, business.gov.au, and Treasury websites increases search costs for participants in the sector and decreases the chance that the resources will be utilised.
It has recommended creating a comprehensive online government resource similar to ASIC’s MoneySmart.
It also said that government agencies should work with relevant sector participants to improve standards of conduct in franchising by developing best practice guidance and education.
Franchisees were generally satisfied with the dispute resolution services provided by the ASBFEO, with some suggesting the role of the ASBFEO be expanded.
The review recommended that the ASBFEO should be given additional powers to name franchisors who have not participated meaningfully in alternative dispute resolution. It also said that the government should assist franchisees to access low-cost legal advice on their case prior to entering formal mediation.
Minister for Small Business Julie Collins said the government is committed to ensuring a fair playing field in franchising.
“Having the right settings underpins positive relationships between franchisors and franchisees and ensures confidence in the sector,” said Ms Collins.
“This review is an opportunity for Government to make sure the regulatory settings support the sustainability and growth of franchising into the future.”
The government has said it will “carefully consider” the findings and recommendations from the review before making a response.