Franchising report reveals “deeply rooted cultural problems”

The Australian Senate thinks there needs to be a comprehensive shift in power in the franchising sector.

In a long-awaited report on its inquiry into the sector, released today, the Senate said the current regulatory environment has failed to deter poor conduct and exploitation within the sector and created an imbalance in power.

On that basis, it recommends giving greater protection to franchisees and whistleblowers and applying greater penalties for misconduct. This would involve making several changes to the Franchising and Oil Codes and giving more responsibility and enforcement powers to the ACCC to conduct investigations into misconduct in the sector.

“There are deeply rooted cultural problems that will not be resolved by a franchisor replacing a few senior executives,” the report stated.

The report points out that disclosure has been the principal and almost only protection for franchisees, and that while many franchisors would like to keep it that way, it is no longer sufficient.

“The extent and breadth of misconduct within the franchise sector demonstrates that disclosures and transparency alone, while vitally important, are an insufficient response to power and information asymmetry,” the report said.

The report recommends more protection for franchisees and employees who want to blow the whistle on franchisors engaging in misconduct, and suggests that whistleblower protections should apply in these cases. The inquiry uncovered many instances of franchisors using intimidation to keep franchisees from speaking out.

The report also recommends steeper civil penalties be introduced into the Competition and Consumer Act 2010, and the Franchising Code of Conduct, in order to ensure they act as a “meaningful deterrent” against further misconduct.

The penalty amounts would be similar to those currently found under Australian Consumer Law, and should be prescribed in legislation so that the limit on penalties under industry codes does not apply to franchising.

One of the major issues in the sector presented in the report is wage theft, partly due to the business model franchisors operate under, and partly due to social and cultural problems within the industry.

“At times, wage theft is occurring as a way for franchisees to extract profits or service payments in order to stay afloat in a financially constrained business model (given wages are one of the greatest costs in the franchisee’s control),” the report said.

“Whilst many franchisors cited greed as the primary motivation for wage theft, the committee notes that the issue is far more complex and partly inherent to the business models’ structural breakdown of power and the imposition of cost controls.”

Last week, the Migrant Workers Taskforce recommended criminal penalties be put in place for businesses which intentionally conduct staff underpayment, noting it had found “widespread levels of non-compliance with relevant laws.”

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  1. MMMR posted on March 14, 2019

    Time for franchisees to join the Australian Association of Franchisees

  2. Ray posted on March 14, 2019

    The issue with wage theft is the responsibility of the franchisors, as they should pay All wages centrally, only that way can it be controlled. I worked for a franchise business in the head office. The franchisees could employ staff, but all staff records were kept at head office from where they were paid. The individual franchisee would be charged for the wage expenses. It was much cheaper for everyone, as setting up multiple wage systems are extremely costly and leads to wage theft. Infortunately many franchisors knows about the wrong doings of their franchisees, but they turn a blind eye, as they put profit before people’s right and Good Governance. The ACCC does not have the resources to conduct audits on thousands of franchisees, but they can audit franchisors records. Ultimately the franchisors sell their name to the franchisee and they are responsible for protecting their Brand . Alternatively they must make it mandatory that all their franchisees must pay the minimum wage for all hours worked. They can put in their agreements, including that all wage records must be sent to head office, including super annuation payments. In order for franchisors to succeed, they must invest in their business, protect their Brand and operate within the framework of The Law, practisecompliant Corporate Governance, including their franchisees.

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