Release type: Speech

Date:

Opening remarks to the Franchising Council of Australia Legal Symposium

Ministers:

The Hon Stuart Robert MP
Minister for Employment, Workforce, Skills, Small and Family Business

Acknowledgements

Good morning, everyone — it is terrific to join you, and to have the honour of officially opening this Symposium.

Thank you to Mary Aldred for the invitation, and to Mary and the FCA for the way in which you engage with me and my office – it’s much appreciated.

I want to acknowledge the Franchising Council of Australia’s (FCA) leadership and pragmatism during the pandemic.

COVID-19 has significantly impacted many in the franchising sector and the FCA has worked tirelessly with government to support you.

COVID support

The Government wants to provide certainty to businesses via the four-phase National Roadmap. 

In Phase B, or once 70 per cent of the Australian population aged 16 and over is fully vaccinated, lockdowns will only occur in extreme circumstances to prevent escalating hospitalisation. 

In the meanwhile, we are offering small business support in New South Wales, South Australia, Victoria, the Australian Capital Territory, Tasmania, Queensland, the Northern Territory and Western Australia — with funding split 50/50 between state governments and the Commonwealth.

We have improved much needed access to finance through the Coronavirus Small and Medium Enterprise Guarantee Scheme. 
And we have extended the Go Local First campaign to encourage Australians to support small and family-owned businesses by shopping locally.

Introduction

As we strive towards re-opening the Australian economy, the Morrison Government does not underestimate the importance or the value of the franchising sector. 

Not only does it make a $155 billion contribution to our economy, it is a network of innovators, it is a community of small and family businesses, and it is an employer of 500,000 Australians.

Whether it be the Gold Coast, Geelong or Glenelg, franchising covers almost every inch of Australia — from traditional vendors in fast food and retailing to countless new service offerings.

But if we want to empower more Australians to get into franchising — and create more jobs in the process — the rules and regulations must operate effectively for everyone. Because this is a special part of the Australian economy. 

It is one that is built on trusted relationships between franchisors and franchisees.  

It is a sector which provides mutual benefit to both parties producing incredible services and products across our community. 

Because we all know the vast majority of you are here because you want to see your franchisees succeed, because when they succeed you succeed. 

Conscious of this, we are driving forward regulations to help both parties because when this relationship works, we see more jobs and growth across our economy. 

When we responded to the parliamentary Fairness in Franchising report in August 2020 there was broad consensus that regulatory reforms were necessary to restore confidence in the franchising sector.

The Government, therefore, committed to supporting the sector through increased transparency and accountability.

We have now delivered a series of targeted reforms.

We are also continuing to consult the sector about what further improvements may be required.

Targeted reforms to the Franchising Code of Conduct

The Code has undergone a number of policy reviews and legislative changes, but I believe our recent reforms are among the most targeted.

Access to information

First, we have amended the Code to improve access to information for franchisees and prospective franchisees.

The improved Information Statement helps prospective franchisees to better understand the risks and rewards of entering into a franchise agreement.

The new Key Facts Sheet requirement highlights critical information about a franchise and helps prospective franchisees to engage with the Disclosure Document before they enter an agreement – and I thank the FCA for their valuable engagement and input on this important document.

And the Disclosure Document now offers better information on potential deal makers or breakers; marketing funds, leasing arrangements, goodwill and supplier rebates.

I appreciate these changes may have felt onerous at times, but it is with our common goal of a strong, robust Franchise sector that we are all working towards, and again, I thank you for your contribution to this.

Earlier this year, the Government revamped the franchising information available via the business.gov.au/franchising website.

Well worth a look, these resources provide a starting point to assist prospective franchisees to weigh up the pros and cons. 

This level of transparency can improve the reputation of franchising and assists franchisors to attract more — and better quality — candidates who will invest and sustainably expand franchise networks. 

Better balancing rights

Secondly, we have amended the Code to address the key challenges outlined in the Fairness in Franchising report.

We are allowing franchisees to propose early termination of their franchise agreement. 

We have strengthened cooling-off rights.

We have strengthened rules for capital expenditure. 

And we have limited unilateral, retrospective changes to franchise agreements, unless the franchisee provides written consent.

Together, these reforms will provide greater confidence in the sector. 

Access to justice

Thirdly, we have amended the Code to improve access to justice.

For the first time, we have expanded dispute resolution options to include conciliation, voluntary arbitration, and allow for compulsory multi-party mediation.

To help make it work we have given ASBFEO — the Australian Small Business and Family Enterprise Ombudsman — new functions in the expanded dispute processes. (And I’m sure you’re looking forward to the Ombudsman’s address to this Symposium tomorrow). 

We have also added virtual dispute resolution as an option. 

This recognises the increasing relevance of online conferencing tools —particularly in COVID times.

The truth is, no one wants franchising relationships to turn sour, but knowing there is a sound dispute mechanism provides both sides with a higher degree of confidence.

Timing

In terms of timing, I am pleased to report that the dispute resolution amendments took effect on 2 June 2021.

Most other amendments commenced on 1 July and updated disclosure document requirements will come into play from 1 November 2021.

It is a testament to many that we managed to deliver these reforms — following a thorough consultation process — despite the challenges of COVID.

I want to acknowledge the work many of you have done — or are currently finalising — to implement these reforms ahead of the 1 November deadline.

I trust the ACCC Deputy Chair, Mick Keogh, will touch on some of these changes to the Franchising Code in his presentation to the Symposium later today. 

Other reforms and work underway

But our work does not end there — we have several other reforms in the pipeline.

Penalties

We believe increased penalties will act as a strong deterrent against breaches of the Code benefitting the system as a whole.

The maximum penalty available for breaches of certain provisions will increase to $10 million — or 3 times the benefit gained, or 10 per cent of annual turnover — for corporate bodies and $500,000 for unincorporated individuals. 

As this audience knows, in practice, the courts would only apply the maximum penalty in the most egregious cases of non-compliance.

The wheels of government are in motion — in August 2021, we introduced a Bill into Parliament to increase the limit of Code penalties. 

Following passage of the legislation and Royal Assent of the Bill, subsequent amendments will be made to the Franchising Code of Conduct.

Franchise Disclosure Register

Building on our 1 July reforms, work is underway to further increase transparency in the franchising sector.

Announced in the 2021-22 Budget, we are investing $4.3 million over four years in a new Franchise Disclosure Register.

The Register puts information in the hands of prospective franchisees earlier in their decision-making journey. 

It aims to give people the opportunity to compare franchise systems and find a brand that is a good fit. 

Under the proposed reforms, the Register will be publicly available and free to access.

Franchisors will be responsible for uploading and publishing information to the Register.

This will include the Disclosure Document, materially relevant facts and limited new information like industry details. 

This will help prospective franchisees search for franchise systems that may be relevant to them. 

Of course, commercial and sensitive information must be treated appropriately. 

It is proposed that franchisors redact some information prior to publishing information to the Register. 

I look forward to seeing the Register go live from early next year. 

All franchisors will be required to first publish disclosure documents on the portal by 31 October 2022, with annual updates to follow in line with franchisor’s existing disclosure cycle. 

There is an opportunity to have some influence over the design and implementation of the Register. 

I invite you to have a say on the draft Register rules and portal design by providing a submission to Treasury by 29 October. 

Automotive franchise sector

I also want to mention the work we have done to strengthen protections in the automotive franchise sector.

To support more than 1500 new car dealers in Australia operating more than 3000 dealerships, the Government has recently implemented several reforms to the Code.

This includes transforming best practice principles into mandatory obligations and explicitly recognising agency models.

Next, we have sought views on a possible standalone Automotive Franchising Code of Conduct as well as options to achieve mandatory binding arbitration for automotive franchisees. 

We have also sought views on whether to expand new car vehicle dealership protections in the Code to related industries like motorcycles, heavy trucks and farm machinery.

As a general principle, we think markets should be free to operate without excessive regulation. 

We have not yet reached a decision and will continue to work with the sector to find a fair outcome informed by the evidence presented to us.

Protections from unfair contract terms

This Symposium has heard a lot about unfair contract terms protections over the years.

We are currently writing the next chapter — the Government has committed to enhancing the protections for consumers and small businesses.

Why? Because the current regime does not provide sufficiently strong deterrence against businesses using unfair contract terms in standard form contracts.  

In August, we consulted on an Exposure Draft Bill on our proposed reforms. This included:

  • prohibiting the use, application and reliance on an unfair term
  • providing courts with the power to impose a financial penalty for a contravention
  • expanding the protections to capture a larger number of small businesses, and
  • creating a rebuttable presumption that a term is unfair if a court has already found a similar term used in similar circumstances is unfair. 

The Government is currently considering submissions received on the Draft Bill.

Small business support

Alongside reforms in franchising, your sector benefits from the Government’s broader agenda for small business. 

This agenda spans tax relief and support with tax disputes, reducing red tape, access to finance, increasing digital capability, a focus on mental health, improving payment times, support for employing your first person, the skills agenda and more. 

In particular, I am proud that this government is progressively decreasing the company tax rates for businesses with aggregated annual turnover of less than $50 million.

Importantly, we are also spending a further $120 million from 2021-2022 in deregulation measures to reduce the regulatory burden for businesses interacting with government, making it easier for businesses to get people into jobs and building foundations for future reforms.

Mental health

Before I wrap up, I want to finish by saying a few words about the support available to small businesses in the area of mental health.

The Franchising Council’s August survey said:
…franchise businesses are clearly very concerned about not just lockdowns but also the wellness of their support staff and the challenges facing their franchisees. 

The Morrison Government is continuing to put the mental health of small business owners first — we have invested $11.6 million in small business mental health and wellbeing initiatives since 2018-19.

For example, the BusinessBalance initiative announced in the 2020-21 Budget provided Beyond Blue with funding to develop the NewAccess for Small Business Owners (NASBO) program in partnership with ASBFEO.

The program provides free, confidential and tailored mental health coaching to small business owners. 

There is also Deakin University’s Counting on U program — another free professional development program that builds the mental health knowledge of business advisers such as accountants and bookkeepers.

Ahead for Business is another initiative doing great work, it is a digital hub that promotes the wellbeing of small business owners.

I encourage you to share and promote these programs within your networks and within the franchising community as we continue to work towards re-opening our economy. 

Closing remarks

On that note, I want to thank the FCA for hosting today’s event.

The Legal Symposium has a proud tradition — it has provided a forum to discuss and debate key developments in franchising law for many years. This year is extra special for many reasons. Despite the challenges and demands of COVID-19, we have consulted widely and delivered some significant reforms.

We have improved access to information, we have further balanced the rights of franchisors and franchisees, we have opened more avenues to resolve disputes and we are increasing penalties to deter the worst misconduct.

Taken together, I believe the Morrison Government has put in place some of the most targeted reforms in the Code’s 20-year history — reforms that ultimately work for everyone by instilling greater confidence in the sector.

I thank you for the opportunity to update you on the significant work underway and I thank you for the opportunity to open today’s Symposium. All the best. Thank you.