Moves are afoot to help even out the balance of power in franchising, writes Ed Charles
ONE of the problems of being a small franchisee is that disputes with the franchisor are unequal. Franchisees are often small businesses while the franchisors are big, multi-million-dollar businesses that can leverage their market power and afford large legal bills.
But the balance of power is moving a step closer to being evened out with the likelihood of the Senate passing legislation that will allow collective bargaining for small businesses without breaching competition legislation.
In October last year, when Queensland Nationals senator Barnaby Joyce opposed federal government changes to competition legislation he also blocked legislation that would allow collective bargaining. But the office of Small Business & Tourism Minister Fran Bailey is confident there is now enough support to push the legislation through the Senate.
At stake is the right for franchisees to band together to negotiate with the franchisor over changes to franchise arrangements that the individual business owners feel are unfair.
Bailey told The Australian: “The Government’s proposed amendments to the Trade Practices Act will make it easier for small businesses to gain the benefits of collective bargaining.
“Collective bargaining enables small businesses, from franchisees to farmers, to more fairly compete with big business.”
Late last month, Bailey launched a review to the Franchising Code of Conduct (FCC), although this will focus on the area of misleading conduct, such as misrepresenting the prospects to potential franchisees, rather than collective negotiations.
At the time, Bailey said: “Over the past few months, a number of concerns have been raised regarding the adequacy of the disclosures section of the Franchising Code.
“Most people in the franchising sector do the right thing, but given the level of concern, I have decided to review the disclosures section of the code.”
Others have also noticed the increase in disputes in the franchise sector. Victorian Small Business Commissioner Mark Brennan says he has seen growth in franchise mediations in his office’s three-year life, although he can’t quantify the numbers.
The FCC, introduced in 1998, is policed by the Australian Competition & Consumer Commission. It requires that complaint-handling procedures should be inserted into all franchise agreements. It states that if a franchisee and franchisor cannot fix a problem within three weeks it can be referred to the Office of the Mediation Adviser. It states: “Both parties are required to attend mediation, and each must include a person authorised to settle the dispute.” It does not cover groups of companies.
Philip Colman, a litigator with franchise specialist Mason Sier Turnbull, says: “It doesn’t really matter what the issue is, if you’ve got a dispute with your franchisor … then certainly there is an encouragement within the franchising sector for parties to try and resolve those disputes through firstly direct negotiation and then mediation.
“There’s no legal obligation to follow those processes unless the franchise agreement itself says that you’ve got to do that. And nearly all franchise agreements these days do say that.”
If the dispute still can’t be resolved, the ACCC can suggest how to take private action. And if the franchisor has blatantly disregarded the FCC or is bullying the franchisee, the ACCC can take action.
Colman has acted for many groups of franchisees and sees no problem in them grouping together in class actions to restore the balance of power.
He says: “An issue that I see is the inequality that exists between franchisors and franchisees where, for example, you might have a franchisee that may have a worthy claim against a franchisor and is unable to pursue that claim — even of them can’t affording to go to mediation — and then they do go to mediation, their bargaining strength is gone as they know that they can’t go to the next stage and litigate.”
Colman has seen cases where franchisors have begun the franchise termination process and schedule mediation for one day before the notice of remedy is due to expire.
“The franchisee comes along to the mediation and they have a gun at their head,” he says.
ACCC chairman Graeme Samuel says most enforcement actions relate to misleading conduct but cannot become involved if the franchisee has failed to do their homework or has mismanaged the business. He says: “We are constantly having to deal with those things.”
Samuel says that associations where small businesses get together and just compare notes are not a problem. He says: “When they start to appoint one of their number to negotiate with a single business, that’s taking it the extra step where there is the potential to be anti-competitive.”
Samuel says that late last year the ACCC streamlined its processes for authorising collective bargaining. The ACCC will help put together applications. He says that within 28 days of receiving a “properly structured authorisation application” the ACCC will put in place an interim authorisation dealing with the matter in full within three months.
Samuel says: “Our position is that once you start to collect together they are potentially engaging in anti-competitive conduct.” He says that if it can be demonstrated that there will be a public benefit, the ACCC will authorise collective bargaining.