Franchising Code a ‘game changer’

 

signature, contractThe Australian Competition and Consumer Commission (ACCC) claims “the game is set to change for operators engaging in serious breaches of the Franchising Code of Conduct” as a result of new enforcement powers.

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The new powers come into effect on January 1 and will allow the competition regulator to issue infringement notices of up to $8500 and seek penalties up to $51,000 in the Federal Court for contraventions of the franchising code.

In a speech to the National Franchise Convention Legal Symposium, ACCC deputy chair, Dr Michael Schaper, said the new enforcement powers will provide flexibility and balance in dealing with breaches of the code at both ends of the severity spectrum.

“Infringement notices will allow us to move swiftly to deal with what we believe to be breaches of the code, while the court penalties will provide more teeth in deterring rogue operators,” Schaper said.

“The changes are likely to go unnoticed by franchisors and franchisees who do the right thing. However, the new powers are likely to play an important role in achieving compliance with the Code.”

He said the ACCC will apply some discretion initially, but will focus on serious conduct, including breaches of the ‘key pillars’ of the revised code, such as failure to act in good faith, failure to provide a disclosure document, refusal to attend mediation, and unlawful termination of a franchise agreement.

The good faith concept has been contentious in the franchising sector, while chain retailers and retail landlords are wary that the concept may become more widely applied to business to business negotiations.

Schaper says the good faith test will fundamentally require both parties to a franchise agreement to remain loyal to the contract they have entered into.

“Acting for an ulterior purpose, or in a way that undermines or denies the other party the benefits of the contract are examples of conduct that may qualify as bad faith.

“While good faith requires you to have regard to the rights and interests of the other party, it does not prevent you from acting in your own legitimate commercial interests.”

The ACCC is conscious about ensuring franchisors, franchisees, and prospective franchisees have clear and meaningful guidance about the franchising code of conduct that was revised and released in April of this year.

It has received 591 complaints and 227 enquiries related to franchising in the last financial year, and in the same period issued audit notices to 62 franchsiors and conducted extended examinations of six fast food operators.

The overall level of complaints is consistent with previous years, but enquiries have increased.

More power

Under the chairmanship of Rod Sims, the ACCC has been seeking increased powers and more flexibility in pursuing breaches of competition laws.

The Federal Government’s Competition Policy Review (the Harper Review) has examined ACCC concerns about regulation and enforcement and considered the introduction of an effects test that could constrain expansion by major chains.

Sims told a leadership forum of the Australian Food and Grocery Council (AFGC) the ACCC was not convinced a grocery code put forward by Coles, Woolworths, and the AFGC will adequately address supplier negotiation issues.

Acknowledging that the grocery code “goes some way to addressing unfair practices in the grocery sector”, Sims said the ACCC remains concerned as “many of the protections of the code are qualified and retailers and suppliers are able to agree to contract out of code provisions”.

“This raises an issue of whether the Code will address the problems which industry has identified if norms of conduct in the Code are able to be traded away, rather than always enforceable,” Sims said.

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