The Senate voted yesterday to move ahead with an inquiry into the scandal ridden sector, following allegations of franchisee exploitation in Donut King owner Retail Food Group’s network and underpayment scandals involving Domino’s, Caltex and 7-Eleven itself.
The convenience chain’s chief executive Angus McKay said that he “looks forward” to sharing his experiences with the Joint Parliamentary Committee on Corporations and Financial Services.
“We share the concerns at recent developments within the broader franchising sector and look forward to contributing to the work of the Joint Parliamentary Committee in developing recommendations to raise the standard across the sector and ensure a transparent, balanced and hopefully prosperous partnership between franchisor and franchisee,” he said.
7-Eleven came under fire after the ABC’s Four Corners program aired allegations of widespread wage underpayment in its network in 2015.
Since then the business has been prompted to review many of its structures and processes to rectify issues in its network but has complained that it is too difficult under existing industry codes for a business of its size to severe ties with offending franchisees.
Under the current code wage underpayment does not automatically enable a franchisor to terminate a franchise agreement, requiring a requisite level of proof that underpayment has occurred in a way that involved fraudulent conduct.
Terms of reference for the inquiry are broad, but primarily related to the Franchising Code of Conduct, which is overseen by the ACCC.
The inquiry will cover the operation and effectiveness of the code, including the adequacy of dispute resolution and termination provisions, as well as the imposition of trading restraints on former franchisees.
It will also evaluate how well the code ensures full disclosure to potential franchisees amid criticisms that the sector lacks transparency.
The Franchise Council of Australia (FCA) executive chairman Bruce Billson has said he will engage with the inquiry but did complain that he was not consulted on the terms of reference.
“The FCA urged a considered examination of the impact of challenging market conditions on small business and how the franchise model can support the success of small business owners and impact on competitiveness,” he said.
Australian Retailers Association (ARA) executive director Russell Zimmerman said that that the ARA was still considering whether to make a submission to the inquiry.
“Obviously it’s fair to say that there’s a lot of concerns in the franchising sector, but not all franchisors are bad news,” he said. “We don’t retrograde regulation.”
Industry veteran Michael Sherlock, who co-founded Brumby’s Bakery, also welcomed the inquiry. But has criticised the FCA’s lack of leadership in exposing the “20 per cent” of franchisors doing the wrong thing.
“Having spent 45 years in franchising I am passionate about the sector and deeply concerned at what has happened in the last few years with the FCA absent in defending the 80% of franchisors who operate their franchise systems in a fair and ethical way and put their franchisees first,” he said.
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