The competition regulator has thrown its weight behind the idea of a dedicated dispute resolution system for franchises, saying the complexities of the sector could warrant such a scheme.
The comments echo recommendations of franchising experts, who say a dedicated franchise dispute service would help to cut down on litigation.
“It’s about time the concerns of the franchising sector have been acknowledged,” University of New South Wales professor and franchise expert Frank Zumbo says.
“These issues have been ongoing for many years.”
Outgoing Australian Competition and Consumer Commission chairman Graeme Samuel told the Australian Financial Review there is sufficient reason to back such a dedicate dispute centre.
The measures are part of proposals included in a draft prepared by small business minister Nick Sherry, who said they aren’t franchising specific.
“There are many thousands of franchise arrangements in Australia and they give rise to a reasonable number of complaints,” Sherry said.
He said more resources should be dedicated to “the process of sorting out whether a matter of contractual dispute is appropriate for mediation or whether a breach of law has taken place.”
“In terms of small business, it’s probably the most important area we can focus on,” Sherry said.
Zumbo says a resolution system would work well for franchisees because they have different liabilities and concerns to a normal business.
“I would suggest that we look at small business disputes in general, yes, as there are many disputes that arise in franchising that arise elsewhere as well,” he said.
“It could be good to have a broader scope for an ombudsman but when you’re in a franchise you’re dealing with ongoing relationships and you need to nurture those.
“If you have a dispute that is ongoing, it threatens the viability of the business and the franchise and that can last for quite a long while.”
There has been a lot of discussion over the viability of dedicated franchisee dispute resolution systems as part of legislative discussion in Western Australia and South Australia, where some franchisees have argued that their contracts are too unfair.
One former Sumo Salad franchisee has set up a new franchising body to help to lobby for franchisees who believe they have been treated unfairly.
DC Strategy executive director Rod Young says a dedicated dispute system for franchisees isn’t the issue, pointing out that any resolution system needs to ensure that the people involved at least have knowledge of how franchising works.
“I think we have a de facto resolution process already, as often the office of the mediation advisor refers mediators who have franchising experience. There are a number of franchise lawyers and those people are also mediators,” Young says.
He said he would not be against such a move but the most important factor should be that systems are managed by people who know what they are doing.
“The core of mediation is really about bringing two people to a compromise and I don’t think there needs to be a specialist franchising flavour of that, more of just an understanding of what goes on in the industry,” Young says.
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written by SEO Strategies, July 05, 2011
written by Ray Borradale, July 05, 2011
What is not dealt in the process are complaints where one party, usually the most financially resourced party, enters mediation to use the process as a continuation of bad faith franchising to further deplete the weaker party. This was mentioned in the 3 franchising Inquiries and SEO strategies in correct; an alternative without the ability to make binding rulings is unlikely to achieve any noticeable long-term improvement.
What has not been acknowledged is the substantial franchisee investor loss potentially brought on by non-renewal or termination of franchise agreements with that common and undercurrent threat used as means to quell legitimate complaint.
The highest proportion of non-reporting of complaints comes from those franchisors whose practices cause the most damage to the franchising industry. The solution for most franchising abuse is the introduction of explicit good faith obligations in franchise relationship law.
written by Scott Cooper, July 06, 2011
As Ray and SEO Strategies have said, the current mediation process is a total waste of time and money where the issue is a breach of law or even the supposed 'mandatory' Franchising Code of Conduct. My franchisor admitted to breaching the law (Franchising Code of Conduct) but wilfully invited litigation in mediation to prove matters such as liability etc if I 'wanted more' than the meaningless and totally unachievable offer.
With the current mediation process not even being binding and relying on the 'good faith' of the parties, litigation is a very effective tool indeed to the financially stronger party. Franchisee loses BIG time, as far too many of us have learned the hard way!
