Joanna Gash (Gilmore, Liberal Party) Share this | Link to this | Hansard source

The South Australian government’s announcement that it intends to appoint a small business commissioner to oversight the franchise industry in that state is something that the federal government should certainly take on board. It is a step in the right direction and a precursor to further legislation being introduced later this year. It brings into stark contrast the differences in approach between two levels of government, albeit from the same political fold. It also begs the question as to why the South Australian government is prepared to act and why the federal government has resisted every attempt to introduce similar reforms.

I note the sentiment expressed by the new Minister for Small Business, who has assumed responsibility for this matter, that he does not intend to change the status quo. This is very disappointing because it signals the fact that this government is not prepared to address the blight of churning within the franchise industry, despite the wealth of evidence against the practice. But it also raises the question as to why the federal government has chosen to follow this direction despite having been handed a report on the industry in December 2008. The former minister’s announcement earlier this year of some changes was dismissed by an industry expert, who described the provisions as window-dressing. What the South Australian government has done is highlight the failure of the federal government to act decisively and sympathetically in response to a well-established case for the need to do so. Western Australia will follow suit, and in Queensland similar calls are being made.

There is absolutely no doubt in my mind of the need to codify the regulation of the franchise industry. At the present time the rules are heavily weighted in favour of the franchisor, relying very much on their goodwill. This is hardly a satisfactory formula for commercial success, and the inquiry handed to the government in December 2008 reflects that.

In an article in The Punch entitled ‘So who really is the new Labor competition minister?’ Professor Frank Zumbo questions why the competition portfolio is absent from the ministerial line-up. I note that Frank Zumbo is in the gallery tonight and I applaud him for his passion on the subject. Given the previous minister’s inaction—in spite of all the adverse commentary—the hundreds of cases of failed franchises, evidence of the practice of churning and the heartbreak and the despair of victims, it is not hard to suspect that this is a strategy on the part of the government to quell debate.

Yet another worrying development has since emerged. Potential franchisees are now being asked by the franchisor to first sign a deed of surrender and release. This instrument prevents the franchisee from suing the franchisor for damages or commenting in any way on any aspect of the contract. This constitutes an effective gag on the franchisee, adding to the suite of factors that work against the franchisee. As far as I can understand, the deed does not preclude the franchisor from engaging in predatory behaviour or from exploiting their position. I suspect that having such an instrument in place delivers the franchisor even more protection from legal remedy. It makes the case for reform even more compelling rather than less.

The minister would be well aware of this recent development, so his statements to the Franchise Council of Australia national convention protecting the status quo are even more remarkable. The government’s only response has been to state that the franchisors must provide to the franchisees more upfront disclosure so as to alert franchisees to the types of information which must remain confidential, including settlements, mediation outcomes, intellectual property, trade secrets and aspects of individual agreements. Now, hang on—if the franchisee signed a deed of silence, how could they report any failure on the part of the franchisor to be upfront, let alone seek a remedy for damages? What is not addressed is how some franchisors use these agreements to further screw their franchisees by refusing to pay any money owed to the franchisee until they sign these agreements. If that is not a standover tactic, what is?

I am concerned at the inaction of this government towards the franchise industry on the face of the evidence that has been made available to it—or, should I say, towards franchisees, because everything the government has done or failed to do so far has favoured franchisors over the franchisees. The franchisor hides behind these agreements, and the ACCC refuses to look beyond them. Is there anyone on the government benches with the courage to argue that these new deeds of silence are not unconscionable or are not harsh and oppressive? I find it remarkable that a government so driven by protecting employees from unfair dismissal patently rejects a similar philosophy for the self-employed worker. It begs the question as to whether there is another agenda playing in the background and who the primary beneficiaries could be. The practice of churning is simply corruption, through and through, and it is not being discouraged by this government.

I also thank the member for Hughes for being present. I know his passion for small business and for franchisees goes without question.