ACCC Recommends Franchisors Licensing Regime

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The Franchising sector is not unfamiliar to being subject of industry focused reviews, particularly in
light of the various changes to the Franchising Code of Conduct (Code) in recent years.

As part of 2023 Franchising Code of Conduct review (Review), the ACCC has provided its own
commentary on the sector and criticised the amendments to the Franchising Code of Conduct as
having failed to address ‘persistent issues’ suffered by franchisees.

The key recommendation the ACCC put forward is that a franchisor licencing regime should be
implemented to address these ‘persisting issues’ to deal with the ongoing power imbalance in
franchise arrangements.

BDC has put together a snapshot of the key concerns raised by the ACCC and its recommendations
to address those matters.

Persistent Issues in the Franchising Sector

Many franchisees do not fully understand their limited rights or significant risks
This is specifically in relation to many franchisees not understanding the true nature of a
franchise arrangement. In particular, this is related to the various restrictions which are
imposed on franchisees by the franchise agreement and the common misconception held by
franchisees with respect to having rights in goodwill.

ACCC has limited ability to rapidly prevent harm to franchisees
The ACCC highlights that it operates in a reactionary capacity once harmful conduct has
occurred and is therefore unable to proactively intervene and prohibit franchisors from
engaging in problematic conduct.

No binding alternative dispute resolution
Franchisees are wanting quick and cost effective processes, however litigation still remains
the predominate means in dealing with disputes, which is cost prohibitive to most
franchisees.

ACCC, as a national code regulator, is limited to which matters it investigates
ACCC makes comment that due to its own ‘priority factors’ as a national regulator across
various industries, many franchisee-related complaints are not able to be investigated.

Recommendations: Franchisor Licencing Regime

The ACCC’s position is that an amended Code would be inadequate in resolving the ‘persistent
issues’ and that a regulatory framework should be implemented to enable a regulator to suspend,
cancel and impose conditions on a franchisor. It is for this reason the ACCC has proposed a licencing
regime. It recommends, at a minimum, the regime should include the following:

  • Allow an appropriate regulator to make an administrative decision to suspend or cancel a
    franchisor’s licence when appropriate with the effect that the franchisor could not solicit for
    new franchisees until the licence is reinstated;
  • Allow an appropriate regulator to impose conditions on the licence and other conditions as
    part of addressing concerns or lifting a suspension or cancellation when appropriate;
  • provide a mechanism for accessible binding dispute resolution between the franchisor and
    franchisee(s);
  • Impose obligations on franchisors to have adequate arrangements in place to manage
    conflicts of interest and provide for risk management; and
  • Impose obligations on franchisors to ensure that franchisees and prospective franchisees
    have the skills, knowledge and experience to successfully operate a franchise before selling
    them a franchise or renewing a franchise agreement.

The ACCC notes that broader consultation is required on how such framework would be
implemented and so it will be interesting as to what the reception to this proposal will be. Time will
tell.

The ACCC also proposes that as an alternative to such licencing regime, that a more comprehensive
Franchise Disclosure Register could achieve similar outcomes.

Other recommendations if the code is retained

The ACCC appreciates that there may some pushback from the industry regarding a licencing regime
and therefore it has provided other recommendations. These include:

  • Franchisors having to provide express warning statements to prospective franchisees;
  • Imposing penalties on franchisors for not retaining documents under the Code and for not
    providing documents for the purpose of ACCC undertaking audits under the Competition and
    Consumer Act 2010.
  • Increasing the quantum of infringement notice penalties for alleged Code breaches;
  • Introducing penalties for more Code breaches;
  • Amending the purpose of the Code to recognise the superior bargaining position enjoyed by
    franchisors;
  • Requiring franchisors to account to franchisees for all marketing spending; and
  • Requiring franchisors to seek agreement from franchisees regarding significant capital
    expenditures where such costs have substantially increased since disclosure or prior
    agreement.

Overall, the licencing regime proposed by the ACCC would be a significant shake-up for franchisors,
however, we expect that there will be extensive consultation and debate to come.
A full copy of the ACCC’s report can be found here: Microsoft Word – ACCC submission to the
Franchising Code of Conduct review – September 2023


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