WA franchise inquiry report finds room for improvement

Posted by Daniel Palmer on 29th April 2008

Small Business Minister Margaret Quirk today released the report of an inquiry into the operation of franchise businesses in Western Australia.

The inquiry was set up in 2007, following some concerns about fairness in franchising arrangements.

South East Metro Small Business Centre manager Chris Bothams was appointed the independent chair of the inquiry.

Mr Bothams, an accomplished and respected former franchisee and two-time winner of the WA Franchisee of the Year award, was also named the National Franchisee of the Year in 2002.

Ms Quirk welcomed Mr Bothams’ report, saying it was a timely check-up on an increasingly important sector of the WA economy.

“The franchise inquiry has found that the state of franchising in WA is in good health but there is room for improvement,” she said.

Current shortfalls identified by the report included:

· disclosure and education for would-be franchisors;

· mandatory dispute resolution; and

· transparency and accountability in end-of-agreement arrangements.

The report made 20 recommendations, with a strong focus on suggested action to the Federal Government, which had responsibility for the Trade Practices Act (1974) and the Australian Competition and Consumer Commission (ACCC), which oversaw the franchising aspects of that legislation.

“I will be taking the report to the next Ministerial Council on Small Business which will be held in Christchurch, New Zealand in May,” the Minister said.

“The council is made up of State, Territory, Federal and New Zealand small business ministers.

“We hope this report will stimulate discussion and ensure WA continues to take a lead role in ensuring a productive environment for small business.”

Ms Quirk said a particularly important recommendation in the report dealt with end-of-agreement arrangements and issues surrounding the non-renewal of franchise agreements.

The report noted that the existing franchising regulations did not specifically address end-of-agreement arrangements and recommended legislative change by the Federal Government to address these perceived shortcomings.

Recommended changes included requiring a franchisor to explicitly disclose a franchisee’s entitlement, or lack of entitlement, to goodwill or other compensation if an agreement was not renewed and required a franchisor to conduct a pre-expiry review with a franchisee at least 12 months before the expiry of an agreement.

The report also recommended the Federal Government amend the Franchising Code of Conduct to make it compulsory for parties in dispute to attend mediation procedures and to ensure that mediation agreements were enforceable with prescribed penalties set out for non-compliance.

Ms Quirk said another important recommendation related to education programs for people considering a franchise as a business opportunity.

“We would like to see programs that provide comprehensive advice on the franchise relationship, the Franchising Code of Conduct, known risks that would-be franchisees should be aware of before entering agreements, contract law and franchisees’ rights and responsibilities,” she said.

“Franchising is one of the fastest-growing and most dynamic sectors in the Australian economy and we want to foster its continued, healthy, growth.

“In 2005, national franchising industry turnover was estimated to be worth $128billion. It is estimated that there are more than 62,000 franchises in Australia, employing more than 600,000 Australians.”

Copies of the report are available on request from the Small Business Development Corporation by calling (08) 9220 0200.
Minister’s office – 9213 7000