Monday, 22 February 2021
Franchising Laws Amendment (Fairness in Franchising) Bill 2020; Second Reading
I am pleased today, as a Labor senator, to rise and speak on the Franchising Laws Amendment (Fairness in Franchising) Bill 2020. The bill is a practical, albeit limited, response to the work that was started by the Parliamentary Joint Committee on Corporations and Financial Services. They delivered a unanimous report with the support of than none other John 'Wacka' Williams, the very effective Nationals senator who delivered the fairness in franchising bill inquiry. This is a bill for fairness for small businesses. It 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 seven per cent of our GDP and is ubiquitous across the country. I think Australians would struggle to name a town or suburb that doesn't feature one franchise business or another, whether it be a petrol station, a cafe 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 businesses across the country. We cannot delay reform any longer. We don't need another inquiry. We don't need another task force or another roundtable. This bill takes long overdue action.
As the inquiry report—and I remind senators that it was a unanimous 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 joint parliamentary committee received a raft of evidence about how the abuse of contractual power can manifest in a franchise agreement. Further, the committee 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. We found disgusting practices such as churning and burning. For those who don't know, 'churning' refers to the repeated sale by the franchisor at a single site of a failed franchise to a new franchisee. 'Burning' refers to continually opening new outlets, some of which are unlikely to be viable, to profit from the upfront fees that the franchisor acquires while leaving existing outlets to struggle and to close. Both churning and burning, while making money for the franchisor, sometimes hundreds of thousands of dollars a turn, leave franchisees emotionally and financially battered and their dreams of owning their own business in tatters.
The extent and breadth of misconduct and exploitation by franchisors within the franchisee sector demonstrate that disclosure and transparency alone, while vitally important, are an insufficient response to power and information asymmetry. That is part of what this bill seeks to do. It will empower the small business ombudsman to recommend arbitration in the same way it can 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. My colleagues from all parties delivered this unanimous report, noting many cases of intimidation and bullying. Justice in the courts was not available because the powerful and those loaded up with dollars had access but a franchisee who had been ruined had no recourse. The bill will provide an optional binding alternative dispute resolution that is determined by an expert in the field. It will also furnish the ombudsman with the power to name and shame those who don't take the recommendation for arbitration.
The reforms proposed in this bill are interdependent and form a holistic framework to reshape the landscape for the current franchising sector. The bill will increase the quantum of penalties for breaches of an industry code in the Competition and Consumer Act 2010 from $66,000 up to a potential $10 million or 10 per cent of the annual turnover of the corporation, or three 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 of the breaches from $66,000 to $10 million to deter bad behaviour from franchisors.
The imbalance of power that this inquiry found was unfortunately accompanied by an imbalance in education. The upgrade of engagement capacity with the ombudsman will allow the ombudsman to address this by providing trusted and unbiased help. 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 franchisors replacing a few senior executives.
Australian businesses have waited long enough; I have waited long enough. Labor is standing up for franchisees here today. We are sick and tired of waiting 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 that engages seven per cent of the GDP remains institutionally broken and unjust. I believe in small businesses. I come from a family that came to this country to build a future and they did that by building a small business. So many hardworking immigrants have seen franchising as a way to learn safely about the Australian business sector only to be totally ripped off by people exploiting the current structures. They need this legislation to provide protection. There is much, much more that the government could do but, from opposition, this is our significant effort to support small businesses at a critical point of need. I urge the government and the crossbenchers to stand with Australian franchisees and pass this bill.
I will start by, just as Senator O'Neill did, acknowledging the work in this space of members on this side, particularly the long and enduring interest of Senator 'Wacka' Williams into this particular topic. That is a tradition that has been carried on by a number of others in this place. We have been joined recently by Senator Ben Small, who has a very strong background in the small business sector. We have Senator David Van sitting in the chamber at the moment, who has a keen and abiding interest in this topic as well. So former Senator Williams's concerns expressed over a great number of years in this place are being continued and acted upon by those on this side. For the small business community, there is nothing better than a strong and durable economy. We have faced an extraordinary shock to the global economy, an extraordinary shock to the Australian economy over the past 12 months but, in a piece of very good news today, I will just inform the chamber that Fitch has reaffirmed Australia's AAA credit rating. They said:
The Australian economy has weathered the pandemic well compared with peers. … This performance reflects successful virus containment and an effective fiscal and monetary response consistent with a policy framework that has underpinned the economy's resilience to shocks over the medium term.
One of the drivers of this is our small business sector and one of the key drivers of the small business sector is our franchise sector and, in particular, the many, many small business franchisees. So with respect, Senator O'Neill, I understand where you're coming from with this bill but what you are doing is misguided and it fails completely to acknowledge the commitment of this government to the small business sector, to the franchise sector, and what this government has done and what this government is doing to assist this sector. It completely fails to acknowledge those facts. I think that comes down to a very simple proposition of why that's the case—because those on the other side do not understand small business and have never understood small business. The franchising sector of our economy is predominantly made up of small businesses, so those on the other side will always struggle to understand it.
Franchising is a very significant part of the Australian economy. It's a $154 billion sector in the 2020-21 financial year. There are around 91,000 franchisees across Australia and 1,200 franchise systems, with half a million people employed within the franchise sector. And, as I have said, almost all of the franchise sector is made up of small businesses. When we think of the franchise sector, all too often it's too easy to think of just your retail fast food chains, be it a McDonald's or a Coffee Club, or perhaps a chain of hotels that operates under a franchise model. That's the obvious part of the franchising sector. But when you think about it a little more deeply, you see that the franchising sector operates right throughout the economy, whether it's in sign-making, whether it's in graphics and printing businesses, whether it's in the construction sector. It also operates in the wholesale trade sector, including the food sector. The retail trade sector is obviously the predominant sector, but we also see it significantly in the transport sector. We see it in the financial services sector, in rental, hiring and real state services. We see it in things like administrative support services such as mowing services, in trampoline parks, swim schools, pet care services, auto repair shops, auto servicing, IT, hairdressing and beauty salons. The franchising sector spreads across the entire economy, and that means we have a diverse range of small businesses, a diverse range of franchising models and a diverse range of Australians who are working and living in these businesses.
We, as a government, have to support them in a responsible manner, to acknowledge that what we do is a very valuable part of the economy and to put in place a regulatory structure that actually delivers for those small businesses right across the Australian economy. Support for small and medium sized family businesses and the franchising sector is something the Australian government does have as a very important priority, and we absolutely acknowledge the issues that came out of the Fairness in franchising report. The report identified a range of misconduct by franchisors. Egregious conduct was not widespread but it was present and did significantly and devastatingly impact on a number of franchisees. In August 2020 the Morrison government announced its commitment to introduce stronger protections and greater transparency for the franchising sector. In fact, the government has already outlined a suite of reforms to restore confidence in this sector. I must say, I think a large part of the sector demonstrated its confidence through its continuing and successful operation throughout the pandemic year. But to add to that, we want to lift franchisor standards of conduct and improve the information available to all franchisees. Draft amendments to the franchising code have been released. These include such things as improving disclosure on significant capital expenditure, supplier rebates and, most importantly, marketing funds. Draft amendments also include preventing franchisors from passing on legal costs to franchisees and retrospective variations to franchise agreements to improve end-of-franchise relationships including cooling-off periods, early exits, terminations and any restraint-of-trade arrangements. They also include strengthening the dispute resolution options and doubling penalties to deter poor conduct in this sector. The government will provide franchisees greater protection by ensuring they have the information they need before they enter a franchise agreement.
Senator O'Neill's bill does not address these much-needed protections. The government will implement a stronger framework to lift franchisor standards of conduct. We're committed to timely implementation of reform, to restore confidence in the franchising sector and to getting these reforms right. This will mean working with the sector to make sure that the implementations of the reforms are done properly. In particular, that means working with that great diversity in the franchising sector I spoke about earlier. This is not a one-size-fits-all sector. This is an extraordinarily complex sector. It has an extraordinary number of participants in it and a large number of different business models. The idea that one size will fit all in such an environment just shows how little understanding of the small-business sector those on the other side have.
The government's response will comprehensively address a much larger range of issues identified in the Fairness in franchising report than the few limited measures that appear in Senator O'Neill's private senator's bill. That would amount to a piecemeal approach, an approach which doesn't address many of the systemic problems identified in that report, and fails to take into account that great diversity and variation in franchising that we see in the Australian economy.
I know my colleagues have contributions to make as well, so I will curtail my remarks there. But let me just say that those on this side of the chamber are the strongest supporters of our franchise sector, the strongest supporters of franchisees, small-business people who are out there trying to do the best for themselves, their families and their employees. We certainly have their backs.
It would be very surprising, if you were the strongest supporter of franchisees and small business, Senator Brockman, if you didn't support this bill here today. The Franchising Laws Amendment (Fairness in Franchising) Bill 2020, and the recommendations of the Parliamentary Joint Committee on Corporations and Financial Services, which are reflected in this bill, has the support of the Australian Small Business and Family Enterprise Ombudsman, the Australian Council of Trade Unions, the Council of Small Business Organisations Australia, COSBOA, the Australian Automotive Dealer Association and the Australian Association of Franchisees. There's pretty comprehensive across-the-board representation there.
Mr Peter Strong—who many in this place know very well and, I would dare to say, are very fond of—the CEO of COSBOA, made the argument that, when a franchisor exploits their small-business franchisees, they're not just exploiting a business; they're ruining the lives of the people who own the business, and their families too. These people might lose their house and everything they have, and often go through extreme emotional stress and turmoil. They don't have the resources to go to court, which is why making inexpensive arbitration available through the ombudsman is so important.
Having participated on the Parliamentary Joint Committee on Corporations and Financial Services myself, that committee and those Senate hearings, in a sense, became part of the work to get some justice for these franchisees, because they didn't have the resources to go to court. The parliament, this place, ended up stepping in, calling witnesses. If I remember rightly—and Senator O'Neill, who was also on that inquiry, if she were here would agree with this—in my time in this place, over nine years, it was the first time we ever had to compel a witness to appear before a Senate inquiry. Indeed, the witness, a very wealthy franchisor from Queensland, took it to the High Court, and the Senate won. The parliament won in the High Court and we had to compel this guy and his team, and his band of lawyers, to come to this parliament and answer questions. That's how important this inquiry was to help represent the small businesses and the people behind those small businesses, the franchisees, in this country. There are nearly 76 recommendations, many if which are reflected in this bill today.
I understand there are currently around 2.4 million small businesses operating in Australia, which is around 90 per cent of all businesses, employing roughly 4.7 million people, which is around 41 per cent of Australia's workforce. I've run a small business myself, though I'm not sure whether you'd say successfully or not. I wound my company up recently because I became a senator and could no longer be a winemaker, but my wife is still very successfully running a small business, which employs 25 people in my local town of Launceston. We understand what it's like to run a small business and employ people and how difficult it can be to be the only one getting up in the morning to make sure that the wheels are turning—that employees are getting paid and clients are getting serviced.
Franchisees are an important part of this small business community. There are nearly 100,000 franchise businesses in Australia, employing over half a million people. Franchisees provide everything from food to entertainment to personal household services, often with globally or nationally recognised names but always with local flavour and connection. Although it's never been easy for small businesses, it's probably never been tougher than it is right now. I'm very glad the government listened to many of us in here and brought in JobKeeper at the beginning of this global pandemic. I, myself, was one of the first people calling for a living wage. I know there were other people in this place that were also looking at what was happening in New Zealand and the UK. I spoke to COSBOA, a number of small business associations around the country and the Tasmanian Chamber of Commerce, my home state, and asked them to lobby really hard to get a living wage for workers, because we didn't want to shut our businesses down. We were told we couldn't open. We were told we couldn't operate. People couldn't come and see us, yet we didn't want to shut those businesses down. We didn't want to send workers to join the Centrelink queue.
We wanted an alternative, and the government, to their credit, after a couple of weeks, listened to the trade unions and the chambers of commerce. It was a really interesting alliance between business and the union movement to help deliver this living wage. It wasn't perfect; it needed lots of tweaking and it probably was not the way we would have designed it if we'd had a chance, but, nevertheless, I think we in this place all agree that paying workers a living wage during tough times like this has worked really well. It really is one of the few things that have kept us literally—pardon the pun!—in business in the last 12 months.
On top of that, we have technological disruptions and a flatlining economy, and, of course, we're not through this pandemic yet, not by a long shot. With an exit rate of around 13 per cent, small business failure is on the increase and it's only going to get worse before it gets better. If the government was serious about supporting its economic engine room, it would accept the 71 recommendations made by the Parliamentary Joint Committee on Corporations and Financial Services and their report The operation and effectiveness of the Franchising Code of Conduct, instead of just fiddling at the margins. A good start to that commitment would be supporting this bill here today, and I am genuinely surprised that the government isn't supporting it. The Greens stand with the Ombudsman, with the unions, with the peak bodies and with Australian small businesses and franchisees in supporting this bill.
Lastly, may I congratulate Senator O'Neill for bringing this bill forward. I know the amount of hard work she put into that inquiry and into getting this bill here today. May I also acknowledge former senator John 'Wacka' Williams, who Senator O'Neill and I and others worked with very closely over many years. I participated in this inquiry but I certainly wasn't a driver like these two were. I know over the years Wacka contributed to much good that's been done in this place. I urge the government to support this bill.
The government do not support Senator O'Neill's bill, the Franchising Laws Amendment (Fairness in Franchising) Bill 2020, not because we are deaf to the plight of small businesses in Australia, not because we haven't heard the very clear message from listening to franchisees across Australia, but because this bill seeks to make a political pre-selection stunt out of what the government consider very real issues. I look forward to explaining in detail why the Morrison government's proposed legislation will go much further to meaningfully addressing franchises in Australia and the very real impact that it has on small business in this country.
The government has already taken strong action to introduce additional protections and greater transparency in the franchising sector in Australia. Our reforms will cover a much broader range of issues, in a more fundamental and carefully considered way, than those put forward by Senator O'Neill. I look forward to the support of Senator Whish-Wilson and the crossbench when we actually address the concerns of those Australians.
The broad range of problems identified in the Fairness in franchising report are real. Seeking to implement the very limited number of Senator O'Neill's proposals now would be a piecemeal approach and detract from the timely consideration and the carefully considered implementation of a full range of reforms that are clearly required in this sector. Replicating the multiparty mediation provisions in the government's response to the Fairness in franchising report is not where we need to be.
The Morrison government has already proposed these reforms on multiparty dispute resolution, and they go significantly further than the reforms contemplated in Senator O'Neill's bill. Where appropriate, multiparty dispute resolution will be compulsory for franchisors. Under Senator O'Neill's proposed bill, franchisors would still need to agree to engage in multiparty dispute resolution. The government's approach instead will allow franchisees to share the costs of dispute resolution, promoting access to justice for those who need it and addressing the clear power imbalance in some cases between franchisors and franchisees. The Morrison government is clearly on the side of small-business people in this case.
Senator O'Neill's bill calls for optional binding alternative dispute resolution. However, we have already committed to introducing voluntary binding arbitration into the franchising code. That has simply been cut and pasted into Senator O'Neill's bill. The Morrison government will go further than that bill, by recognising that conciliation is an important form of dispute resolution that should be available to franchisors and franchisees. The government is committed to this franchising dispute resolution assistance also via the Australian Small Business and Family Enterprise Ombudsman's office, recognising the importance of the role that the ombudsman has to play in the franchising sector.
The Morrison government's reforms will also see franchisors subject to increased civil penalties of up to $10 million for engaging in misleading, deceptive or unconscionable conduct under the Australian Consumer Law and up to 600 penalty units, which would currently equate to $133,200, per offence for all other offences under the strengthened franchise code. The government is committed to this significant, 100 per cent increase—that is, a doubling—of the penalties for breaches of the franchise code. As the enforcement agency for the franchising code, the ACCC has the power to seek penalties for breaches of Australian Consumer Law. That again equates to $10 million, three times the value of the benefit received or 10 per cent of the enterprise's annual turnover in the preceding 12 months where the court cannot clearly determine the benefit from the offence. So it is the Morrison government that is on the side of franchisees in Australia, implementing a stronger framework that adequately addresses the root causes of issues that franchisees face.
On 20 August, as my colleague Senator Brockman has clearly outlined, we announced that the Morrison government was committed to introducing stronger protections and greater transparency for the franchising sector in order to restore confidence and enable this important part of the Australian economy to go from strength to strength. Our reforms, as I've clearly stated, go much further, covering a broader range of issues and addressing the systemic problems that the Fairness in franchising report has articulated. It is the Morrison government that can be trusted to implement a stronger framework to deliver improved franchisor standards of conduct and stay on the side of Australian small business. The government is committed to a timely implementation of these measures, thereby restoring confidence in the franchising sector. This comprehensively addresses a broad range of problems identified in the Fairness in franchising report and doesn't seek simply to make a political point out of the limited number of points that Senator O'Neill's bill has raised.
I guess we can point to this because we haven't seen a spread on the back of the Fin Review today and we haven't been in here articulating promises that don't adequately address the issues that are faced every day by Australians out in the economy in this important sector. By increasing the penalties, by addressing systemic concerns and by furthering the Morrison government's clear commitment to Australian small business, we are on the side of Australian franchisees and have listened to their concerns carefully. Our track record clearly speaks to this, with the coalition government delivering a series of very important policy reforms since 2013 that saw more than 1.5 million jobs created before the onset of the COVID-19 pandemic. We're in a better, stronger and more resilient position than many countries around the world because we listen to business. We get business and we respond to the concerns of business in Australia.
The assistance that we provided through the COVID-19 pandemic has built upon this substantial track record of putting in place actual policies that mean something to Australian small business. So, far from grandstanding on this important issue and far from turning our backs on the needs of Australian small businesses, we are here with a meaningful, carefully considered and comprehensive range of reforms that are far-reaching, that will be meaningful and that actually deliver benefit to those Australians who we clearly heard, through the Fairness in franchising report, needed our assistance.
It was Labor that voted against tax relief for small and medium business 15 times in the last parliament. It was the Labor Party that went to the last election with $387 billion in additional taxes.
An honourable senator: How much?
It was $387 billion in additional taxes, and now, to make a political point out of this, Senator O'Neill would seek to disrupt, undermine and dissuade people from supporting this very important process. The Morrison government will address this. We've been clear about the way in which it will benefit Australians, and we look forward to support from the crossbench when we seek to do so.
As a servant to the people of Queensland and Australia, I note that Senator O'Neill has taken on a real David and Goliath battle, and she's taken it on well. I point to one corner, in which we have General Motors, one of the world's largest corporations, which ruthlessly abandoned its franchisees in this country. It did it without any consideration, and the government stood by and watched. Families had put their businesses together over decades. There had been blood, sweat and tears, and lots of hard work. Small to medium businesses had ploughed so much work into their businesses as well. And what did we see? General Motors just divested themselves of them. They were tossed aside on the scrap heap, and the government delayed. It promised to address this issue, but still it failed to do so.
No wonder people are feeling concerned, afraid, vulnerable and very worried at the hands of large multinational companies with huge imbalances of power. General Motors is treating their franchisees, the Holden dealers right across this country—small businesses, often with decades of history—like dirt. Now we have Mercedes lining up to do the same, as are Honda and Renault. Honda, a company that has worked with its dealers so admirably around the world, is now looking to quit its dealer network as well. These companies are stealing databases that have been built up over decades.
I turn to the Queensland rural dealerships. Look at our state. It's the most decentralised of any. It's the only state with more people in the rural areas than in the capital city. Those dealer networks need support. But it's not just car dealers; it's also boat dealers, marine dealers, water sport dealers and motorbike dealers. And it's not just wheeled dealers; it's people with small business franchises right across this country. What they need is support. They need fairness and they need support for locals. They need some security and some certainty. There are 60,000 workers in the auto sector alone, according to Senator O'Neill, and that includes many, many tradesmen and many apprentices. There are good people and local community businesses.
I want to commend Senator O'Neill, because Senator O'Neill came to us to explain her bill. She asked for our support. She did her research. She was willing to be on call at any time to answer questions and to put her staff on call. I acknowledge that—through you, Deputy President—to Senator O'Neill. I appreciate it and I endorse her work. She works. If other Labor senators had the same enthusiasm in general as Senator O'Neill then we'd be able to work much, much better with them. We commend Senator O'Neill for the way in which she came to us freely to offer her bill.
Senator O'Neill, sadly, is one of the very few real Labor senators in this parliament. I know that at least 20 per cent of Labor senators are upset with the way Labor has turned against workers, abandoned workers, in favour of woke policies supporting the globalists' agenda. Look at things like taxation policy. Look at things like energy policy destroying manufacturing. The Liberals and Nationals are similar; they're just a matter of grades apart. The Labor Party's policies and the Liberal-National coalition's policies are abandoning manufacturing. They're swallowing the UN dictates: the UN Kyoto protocol, the UN Paris Agreement—which is not really an agreement—and, going back to 1975, the UN's Lima Declaration. They all sell out manufacturing. They sell out, to some extent, all industry, including agriculture. What about the so-called free trade agreements? We want, instead, fair trade agreements. Labor's support for free trade agreements means that they're selling out workers and Australian employers, small and large. There are the tax policies, as I said, that let foreign multinationals off the hook. The Labor Party in the era of Prime Minister Bob Hawke let them off the hook with the petroleum resource rent tax. A few Labor senators stand up for workers, but, sadly, they're in a very small minority.
Look at pay rates, which are stagnant because of the rising immigration we had until COVID. Rising costs and stagnant pay mean living standards are falling. Look at the oversupply of workers. We have an oversupply of workers, which is driving wage rates down. Look at the pressure on housing, driving housing prices up. Look at the pressure on infrastructure in this country because the labour is tied to this large-country policy of letting in many, many immigrants, far more than we need. Look at the gender bending, the indoctrination in schools and the trendy virtue signalling that is taking over the Labor Party. We have good senators, like Senators Sterle, Farrell, Gallacher, Sheldon and others, who are great to work with. They support workers. They're honest people. They are saddened that their Labor Party has abandoned them, that the Labor Party has swamped them in woke policies.
While Senator O'Neill supports real Australian businesses, her party has largely abandoned workers. Look at the energy sector. Coal has been tossed on the scrapheap by Labor's virtue signallers. Look at industrial relations, where Mr Joel Fitzgibbon has abandoned and neglected the abused and exploited workers in the Hunter Valley—workers that I had to come in from Queensland to support, with Stuart Bonds, our candidate in the Hunter. They are selling out our sovereignty to the UN globalists. These are the things that Labor now stand for.
As Senator O'Neill has shown leadership in working with all the parties on the crossbench and the Greens—Senator Whish-Wilson has complimented her, and rightly so—we would expect that Labor would have a reasonable accommodation in play. We would reasonably expect that the Labor Party would have a more favourable attitude to Senator Hanson's bill to get foreign companies to pay tax on petroleum resources. Yet Labor denied support to our bill. When we asked them why, there was just a blank stare, no reason or justification.
I will finish talking about this bill by emphasising the two major benefits. It brings compulsory arbitration to rectify the imbalance between those who have enormous power, like General Motors, and the franchisees, who have limited power. And there is the massive increase in penalties, all justified to restore some balance in power. However, TheAustralian Financial Review rightly said today that this is just plugging a hole in the dike.
Labor has lost its way in policy. Labor has lost its way in our Senate. One Nation reiterate again that we would support all parties, yet we expect parties to work with us and to give us a fair go. I support this bill. I thank Senator O'Neill again for her leadership in reaching out to me and my office. We will work happily with Senator O'Neill. I remind the Labor Party that if they ever get back into power they will need to work with us. We will be happy to work with people like Senator O'Neill, Senator Farrell, Senator Sterle, Senator Gallacher and Senator Sheldon. These people, sadly, are in a minority. We will happily work with Senator O'Neill and her like.
While I will not be supporting this bill, I rise to thank Senator O'Neill for all her efforts on this bill, the Franchising Laws Amendment (Fairness in Franchising) Bill 2020, and for her tireless efforts around franchising. This is a speech I've long wanted to give in this place. For a bit of background, prior to being elected to the Senate I worked very closely with the franchising sector. I was a voluntary director on the Australian Association of Franchisees, which Senator Whish-Wilson mentioned earlier. I have worked with most of the organisations that he named.
The Parliamentary Joint Committee on Corporations and Financial Services—Senator O'Neill and all the members of that committee, particularly Michael Sukkar, as the chair, and, before him, Steve Irons—did an incredibly thorough investigation of franchising. I sat in on almost all of those inquiries. I'm probably one of the few senators—probably one of the few people on the planet—who read all of the submissions to that inquiry. Those submissions were harrowing, absolutely harrowing. They were about the effects that the power imbalance in franchising has on small businesses.
Senator Farrell interjecting—
Senator Farrell, I'll come to that. I'll take your interjections any time, because you're just going to help me reinforce my points.
Those stories were harrowing. They were about the complete and utter devastation caused to people's lives by the power imbalance which is written into the code. The code is not the right instrument for this. While I've said I'm not going to support Senator O'Neill's bill, it's not because it's not a step in the right direction—it truly is. The government's legislation is pending. As everyone in this place knows, extraordinary consultation has been going on about that. The pending legislation which will come before this place goes an awful lot further, so why take one small step when we can take a giant leap?
On that, the inquiry heard about the power imbalance that I talked about before. The inquiry gave franchisees the ability to have their voices heard. The report and the recommendations that came forward were incredibly important. There's no doubt that the franchising code is effectively broken. There have been numerous attempts to reform the franchising code since it was introduced in 1998, including a complete rebuild of the code in 2015. As Senator O'Neill mentioned, there have been 17 inquiries into this code, yet we still run into these systemic problems and the ongoing issues that occur within the sector.
The submissions and testimonies of franchisees, coupled with the near criminal responses from the leadership of some notable franchisors, show the drastic need for reform to help protect the investments of franchisees. That's not to say that franchising cannot work or doesn't work. There are an incredible number of wonderful franchise systems out there. I'd probably say that the split is something like 90 per cent good versus 10 per cent bad. There are strong examples of franchising working. They're powerful businesses that do a lot to grow the economy. They employ hundreds of thousands of people and contribute billions to the Australian economy.
The problem with Senator O'Neill's bill is that it just doesn't go far enough. I think it's a valid attempt and I do congratulate her for taking on that role and standing up in her caucus to do so; however, we need to look at what further we can do. The draft amendments to the franchising code that this government is suggesting will improve disclosure on significant capital expenditure, supplier rebates and marketing funds. It will prevent franchisors passing on legal costs to franchisees in respect of the variation of franchise agreements. It will improve end-of-franchise relationships, including cooling-off, early-exit, termination and restraint-of-trade arrangements. It will strengthen dispute resolution options and double penalties to deter poor conduct in the sector. No-one in this place should be under any illusion: there is a lot of poor conduct in this sector. Given how important franchising is to our economy, that needs to be stamped out. I strongly believe in the way that the Morrison government is tackling this issue. I believe it is going to bring a lot of change in the sector, far more than Senator O'Neill's bill would.
That doesn't mean that we can't go further. Some of the reforms that I've suggested include looking at the base legislation of franchising. Is an industry code the right way to do it? Is having it sit in consumer law the best protection that we can provide to these small businesses? My argument would be that it's not and I'll explain why I think that. If you look at franchising at its simplest, it is quite literally one business saying to another, 'We want to grow our business, so if you contribute some capital and some sweat equity we'll all be able to grow.' Any way you look at it, that is a form of capitalisation of another business. As a form of capitalisation it should be treated as an investment. It's not the same as an equity investment or a debt investment, but it's an investment nonetheless. Therefore, long term, because these changes won't come about simply or easily, we should commit to looking at changing the franchising sector from being covered by the Australian Consumer Law to being covered by the Corporations Act. I think it would sit in there much more solidly than it does under the Consumer Law. That would address some of the franchisor behaviour that goes on. I can point my fellow senators to any number of franchise agreements that lock in ways whereby only the franchisor is ever going to be the winner out of the agreement, whether it be through the churning and burning that was mentioned before or by putting all the onus for capital leases and leases for premises et cetera on the small business franchisee. It locks in disadvantage, locks in a power imbalance. That is something we do need to resolve.
What I've proposed to my colleagues and leadership is that the franchising sector be put before the Australian Law Reform Commission for review. It should be looked at from the grassroots up as to how we can better structure legislation around franchising to give maximum protection to small business while enabling franchising to succeed and truly be the generator of wealth for our economy that we've seen it can be. We want to see the best franchising systems—and we all know there are some very successful ones out there—succeed even more than they do now. We must stamp out this power imbalance such that it's gone forever and we no longer hear the stories of people losing their houses. I think the best example I can provide is of the Pizza Hut franchisees who were told overnight that they were going to have to sell pizzas for under $5. That didn't come with a subsidy from the franchisor. That didn't come with any rebate for selling those pizzas below cost. They were forced to do it, and the franchising code and their franchising agreement which was covered by that code allowed the franchisor to do that. That put an incredible number of small businesses to the wall and that cannot be allowed to happen again.
So, while I sadly won't be supporting Senator O'Neill's bill, I thank her for her tireless efforts in this and thank every member of the parliamentary joint committee, including Senator Whish-Wilson for his work on that committee. I think we have further to go. I'd to like to see both sides of parliament work on this. Senator O'Neill and I have discussed this quite regularly, and I hope to keep that line of communication open on how we can improve the franchising sector.
I would like to sum up the debate on the second reading of the Franchising Laws Amendment (Fairness in Franchising) Bill 2020. Can I thank all the senators for participating in the debate. I acknowledge the contributions of the government members. Senator Van, thank you for your kind words about the efforts that have been made by the committee which delivered that unanimous report. I also want to acknowledge the contributions of new Senator Small from Western Australia and not-so-new Senator Brockman from Western Australia. At least they made the effort to come in here and speak on it. However, it's got to a point where the Australian people are pretty well over hearing the government come in here, bleating and moaning, with statements that begin with: 'We care. We care about what's happening to you. We understand what's happening to you.' They're the government.
Caring and understanding are the beginning of action, but what's missing from this government is action. And the sector that they're abandoning by not supporting this bill today is the small-business sector right across this country—the small-business sector that is continually told by the Liberal Party that they are the party for small business. Well, they're not the party for small business today—and they haven't been the party for small business for a very, very long time—if they do not support this piece of legislation, which I described this morning, and it was reported by Adele Ferguson in a very good piece in the Financial Review, as a finger in a dyke. There's so much work to be done in terms of franchising in this country. The government's making a very, very light-touch response on a promise. This bill actually does some grunt work and gets protection in place for small businesses that need it right now.
I want to thank Senator Whish-Wilson for his contribution not only on the committee—and I know you're no longer a member of that committee, but for the work that you did and your very kind words here. I also acknowledge the Nationals senator, Senator 'Wacka' Williams. The Nationals had a heart, a voice and a man of action when they had him in the chamber. If they really cared about what was going on in small businesses right across this country, particularly in rural and regional Australia, they would be supporting this Labor bill today. They know that this matters, because recently a very good example emerged, when General Motors just walked all over Australian businesses. We're not talking about little businesses here with regard to car dealers. These are very, very important parts of our local community. These are multigenerational small businesses that have grown, that are part of the care economy that happens in our regions across this country, that are part of a dealership network across the country so that when grey nomads, having worked a long life and paid their taxes, have enough money to get around Australia know that when they're in Townsville, Cloncurry, the Pilbara, in far western New South Wales or even down in Tasmania they will be able to get proper service and be looked after by a network of high-quality tradespeople who are operating out of these dealership networks across Australia. Well, they got totally done over. Holden dealers got done over by General Motors, an overseas company. Minister Karen Andrews, Prime Minister Scott Morrison and Michaelia Cash, in concert with them, did nothing to prevent General Motors doing over an entire sector. There was no capacity for them to have proper arbitration about General Motors deciding to leave the country. And because they left that sector hanging, there have been changes to business models for Honda, Renault and Mercedes Benz that have walked right through the door because this government hasn't got the guts to do the hard work and stand up for franchisees instead of the very wealthy franchisors and overseas companies. That's who they chose over hardworking Australian businesses. That's where we are today.
I want to thank Senator Roberts from One Nation. I want to be very clear: there are many, many things that Labor will disagree with, with all of the different political parties that are in here. But one thing I and my colleagues are committed to is the practice of democracy. When the Australian people elect people to this House, it is incumbent on all of us to work to get good outcomes for the Australian people. This bill, in my name today, a Labor bill, is a bill to protect small businesses in the absence of a Liberal government, a Liberal-National party government, that is leaving them hanging. I want to thank Senator Roberts for his kind words about the hard work of the committee. I hope that we will get support for this bill today and that it ends up in the House of Representatives and enough people will have the common sense not only to do the work that the government has proposed that they will do but to do the work now in supporting this bill, to give necessary protections urgently needed to make sure no more small businesses that are engaged in franchise structure are able to be exploited, because that cannot help us in our recovery.
I want to reiterate from my original remarks the scale of why this matters. The franchising sector accounts for seven per cent of the GDP. This is no small thing. We won't have a car dealership network standing in two years after the government watched and waited. What Australians know as a network that they rely on and support will be gone. So I urge you, senators, particularly senators on the crossbench, join with Labor in supporting small business today. I urge The Nationals: have a heart, have the guts to stand up for your local small businesses. Come in and support this bill and let's get this done as a first important step towards further reforms that the government has heralded.