International Law

Franchise Regulation Review in Australia

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Some ideas about regulating franchising in Australia.

Franchising in Australia is currently regulated by the Franchising Code of Conduct (the Code), which is a mandatory industry code established under section 51AE of the Trade Practices Act 1974 (Trade Practices Act).

The Code was established as a mandatory industry code in 1998. This followed the failure of an earlier voluntary code (established in 1993) to address the high levels of disputes in the sector resulting from the imbalance of power between franchisors and franchisees.

Other mandatory codes established under the Trade Practices Act apply to the petroleum and horticulture industries. 

Franchising agreements are also subject to the application of general provisions within the Trade Practices Act. These include: 

? Section 51AC on unconscionable conduct in business transactions; 

? Section 52 on misleading or deceptive conduct; 

? Section 53 on false or misleading representations; and 

? Section 53 on false or misleading representations about business activities.  

Despite the strengthened regulatory framework, concerns remain that the problems that led to the establishment of the Code have not been adequately rectified. In 2006, a review by the Office of Small Business examined the disclosure provisions in the Code.

Regulations to give effect to recommendations from the review came into effect on 1 March 2008.

Two state-based inquiries have also been conducted to examine the issue more broadly and these are described as follows. 

WA government inquiry 

In April 2008 the WA state government undertook an inquiry into the fairness of franchise agreements. The report included recommendations to improve franchisor disclosure and end of agreement arrangements, review mediation processes for resolving disputes, and establish a dedicated franchising enforcement within the ACCC. 

SA parliamentary committee inquiry 

In May 2008 the South Australian parliamentary Economics and Finance Committee also tabled a report on the efficacy of the laws regulating the franchisee/franchisor relationship. This adopted a stronger position on legislative reform than the WA government's report. The committee concluded that a number of improvements to the regulation of franchising are needed, including the following recommendations: 

? Establishing a federal registration scheme for franchise disclosure documents; 

? Amending section 51AC of the Trade Practices Act to include a statutory definition of unconscionable conduct; and 

? Amending the Franchising Code of Conduct to include a requirement to act in good faith. 

The South Australian committee report can be viewed here. 

Full post as published by Misleading Advertising Law on October 21, 2008 (boomark / email).