Senate debates

Wednesday, 2 September 2020


Franchising Laws Amendment (Fairness in Franchising) Bill 2020; Second Reading

3:38 pm

Photo of Deborah O'NeillDeborah O'Neill (NSW, Australian Labor Party) Share this | | Hansard source

I move:

That this bill be now read a second time.

I seek leave to table an explanatory memorandum relating to the bill.

Leave granted.

I table an explanatory memorandum and I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

Thank you, Mr President.

I rise today to speak on the Franchising Laws Amendment (Fairness in Franchising) Bill 2020. This Bill is a practical response to the work that was started in the Parliamentary Joint Committee on Corporations and Financial Services "Fairness in Franchising Inquiry".

This Bill proposes urgently needed and necessary reforms to add appropriate and meaningful balance to a multibillion-dollar industry that was shown to be inappropriately regulated, with an ineffective code of conduct and rife with unjust practices.

The franchising sector produces almost 7% of our GDP and is ubiquitous across this country. I would struggle to name a town or suburb in Australia that does not feature one franchise business or another, whether it be a petrol station, a café or a fast food restaurant. This sector has been the subject of 17 inquiries over the last 30 years due to the chronic and endemic issues that are continually played out in the media and through the trials and traumas of hundreds of Small and medium businesses across the country. We cannot delay reform anymore.

We don't need another inquiry, we don't need another taskforce or roundtable. This Bill takes long overdue action.

As the Inquiry Report noted "the evidence to this inquiry indicates that the problems, including exploitation in certain franchise systems, are systemic…the franchise agreement embeds the power disparity between franchisor and franchisee for the duration of the contract, including the exit arrangements."

The Committee received a raft of evidence about how the abuse of contractual power can manifest in a franchise agreement. Further, the Committee also received evidence that pointed to shortcomings in the current regulatory responses such as the duty to act in good faith and the unfair contract terms provisions.

The inquiry uncovered rampant examples of wage theft, bankruptcy, bringing about family and marriage breakdowns, lasting mental ill health and financial strain.

It also found disgusting business practices like churning and burning were commonplace. Churning refers to the repeated sale at a single site of a failed franchise to a new franchisee, whereas burning refers to continually opening new outlets, some of which are unlikely to be viable, to profit from upfront fees, while leaving existing outlets to struggle and close. Both those practices, while making money for the franchisor, leave franchisees emotionally and financially battered and their dreams of owning their own business in tatters.

While disclosure of these issues helps, the inquiry noted that "the extent and breadth of misconduct and exploitation by franchisors within the franchise sector demonstrates that disclosure and transparency alone, while vitally important, are an insufficient response to power and information asymmetry." We cannot continue to dither.

It recommended that arbitration between franchisees and franchisors be enshrined in legislation, to end the threat of expensive, damaging and one-sided litigation. This reform is at the heart of this Bill.

Arbitration works, it is less expensive and divisive than litigation and will encourage compromise and cooperation. This will empower the Ombudsman to recommend arbitration in the same way that that it is able to for the Dairy Code.

The inability of franchisees to effectively pursue disputes or breaches of contract through the current framework was one of the key findings of the Inquiry. It also noted many cases of bullying and intimidation by franchisors to silence franchisees into burying their complaints. Justice in the courts was only available to the most powerful and wealthy of franchisors and allowed malpractice to go unpunished and franchisors free to bully franchisees. We must address this power imbalance if we are ever to fix the systemic dysfunction in this sector. Issues like high fees, royalties, rebates and draconian refurbishment costs that are pushed on franchisees are never going to be stopped until we remove the belief in franchisors' heads that they can act with impunity.

This Bill will provide an optional binding alternative dispute resolution that is determined by an expert in the field.

The reforms proposed in this Bill are interdependent and form a holistic framework to reshape the landscape of the current franchising sector. Oversight of the franchise sector will be added to the Australian Small Business and Family Enterprise Ombudsman which will not only empower them to recommend arbitration but also to offer advice and support to both parties in areas of dispute.

This Bill will increase the quantum of penalties for breach of the Franchising Code in the Competition and Consumer Act 2010 from $66,600 to $10 million, 10% of the annual turnover of the corporation or 3 times the benefit that the corporation directly or indirectly obtained from the breach, whichever is higher. In 2019, the ACCC recommended to a Parliamentary Inquiry into Franchising to increase the penalties for breaches from $66,600 to $10 million to deter bad behaviour from franchisors. The Committee in its final report to this inquiry made this same recommendation.

The Government announced in their response to the Franchising inquiry they would increase the penalty from $66,600 to $133,200 but this was poorly received by stakeholders as it would not deter the poor conduct and exploitative behaviour which the committee found in the sector. My Bill will give real teeth to enforcement of these regulations, rather than this Government's slap on the wrist. This reform will deter any franchisor or franchisee that breaks the industry code and will bring certainty and stability to the sector.

The imbalance of power that the inquiry found was unfortunately accompanied by an imbalance in education. The upgrade of the Ombudsman will allow them to address this by providing a trusted and unbiased location for information and help. The Ombudsman has been in favour of these changes for two years, as are key stakeholders COSBOA, Australian Automotive Dealers Association and the Association of Australian Franchisees.

Small businesses are being driven into economic peril by a sector that has shown it is incapable of self-policing or renewal. As was reported in the Inquiry "there are deeply rooted cultural problems that will not be resolved by a franchisor replacing a few senior executives".

Franchisees have waited long enough for the Government to get its act together and implement the recommendations in the committee's report. We cannot rebuild our economy when such a large sector remains institutionally broken and unjust. The actions of certain franchisors have done serious reputational and real reforms need to be enacted to bring back confidence in the sector.

Franchising is still a growing sector in Australia's business community. We should be supporting the growth of the industry in a sustainable manner rather than one that acts in a parasitic way. Dodgy franchisors should not be able to trick or abuse franchisees. Franchisees should not see "indentured servitude" or "slavery" as the only way to turn a profit due to restrictive and predatory contracts. Workers should not be the victims of wage theft to prop up this unfair and vicious system.

Labor believes in small business and we know, now more than ever it needs support. I myself like so many first-generation Australians, come from a family that came to Australia to build a future. They did that by building a business. They worked hard and they relied on fair and ethical business with other Australian business. Small business and franchisees rely on trust and the knowledge that there are independent government arbiters that can resolve disputes between parties.

The reforms that this Bill proposes are recommended by a bipartisan parliamentary report, already in practice in other economic sectors, and broadly supported by most major stakeholders. The evidence received by the Franchising Inquiry was just as egregious and just as horrifying as what was heard in the Royal Commission into the Banking Sector. This economic crisis has put more businesses than ever against the wall and without proper regulation issues these practices of exploitation will start again.

I urge the Government and crossbench to stand with Australian franchisees and pass this Bill. These small but significant changes will make the world of difference to small businesses facing down big franchisors. The Government has shown that they are deaf to the cries of franchisees working 80 hours a week only to sell their business at a loss. The Government is deaf to the plight of long established and successful car dealers losing their businesses overnight when a foreign company decides to arbitrarily withdraw from the market. Labor will not stand by and hear another story of a family home lost, a marriage ruined or a mental breakdown.

The problems facing people in engaged in franchising in Australia are not insoluble. The government could have chosen to fix these problems. The reform roadmap from the report has sat in front of us for over a year. We know the horror stories of wage slavery, bankruptcy, mental and emotional breakdowns that have become all too commonplace in this sector.

We are in the first recession in thirty years. Franchisees need help and they need it now in this time of economic strife. No more delay. I urge all Senators to support this Bill, bring justice to the sector and help put franchising in Australia back on track.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.