The Australian Franchisee Rights Petition

The articles and commentary on pages 1 through 3 in John Mellor’s GoAutoNews edition No.520 of February 24th 2010 (Click for PDF Download), brought to light the urgent need to improve the rights of franchisees in Australia.

Australian franchisees range from simple sole trader or partnership businesses of mum’s and dad’s providing personal or home services, up to large businesses employing hundreds of Australian citizens. At the larger end of the scale the businesses are capital intensive, carry a significant level of risk and require the franchisee to make substantial investments of capital and labour.

The Franchising Code of Conduct (the Code) is a mandatory industry code of conduct that has the force of law under the Trade Practices Act 1974 (the TPA). The Code is supposed to provide a level of protection to franchisees and assure them of reasonable dealing by the franchisor.

The Code superseded the voluntary Franchising Code of Practice of 1992. Unfortunately for franchisees however, the Code provides significantly less protection for franchisees in comparison to the voluntary code.

Despite efforts to achieve the contrary, the TPA and the Code do not restrict a franchisor from unilaterally varying a franchise agreement nor do those laws require that a franchisor act in good faith. Franchisees, who are almost always in the weaker bargaining position, must negotiate with franchisors to attempt to curtail the franchisor’s right to unilaterally vary the terms of the agreement and to require the franchisor act reasonably when exercising a right or discretion under the agreement. While there is a common law duty to act in good faith, this duty may be expressly excluded from the terms of the franchise agreement by the franchisor. Even assuming that the implied duty has not been excluded, bringing an action for breach of good faith is very difficult as that duty does not prevent a franchisor from acting in its own interests, as long as the franchisor does not act capriciously or for some extraneous purpose, and accordingly is very difficult to prove.

Examples of behaviours engaged in by franchisors to the detriment of franchisees include:
• Unilateral issue and/or amendment of policy documents and operations manuals, the terms of which are incorporated into the terms of the franchise agreement and thus by amending these documents the obligations contained in the franchise agreement can be fundamentally altered. Further to this, a franchisee will be in breach of their franchise agreement if they breach the policies and/or operations manuals.
• Determine to end the relationship by non-renewal without cause, without explanation and often without the opportunity to sell the business to recover the goodwill developed in that business.
• Act in the sole interest of the franchisor and its owners without reference or regard to the effect on the franchisees, their investment or their employees.
• Require the franchisee to employ and train employees to a certain level of expertise without providing the necessary franchisee experience or competence within their own organisation so as to assist the franchisees.

The Government has held a number of ‘enquiries’ into the Code and received numerous reports and submissions indicating that the Code needs to be strengthened in order to protect franchisees. However, Government Ministers continue to sit on their hands.

It is not in the interests of franchisors, the bigger businesses, to see the Code amended to afford greater protection to franchisees.

As a franchisee or an individual employee of a franchisee, you need to make our Parliament, Senate and the Minister responsible understand that as it is now, the law is inadequate to protect the rights of franchisees.