The Franchise Council of Australia, the peak industry body, has called on the Western Australian Government to urgently reconsider its decision to establish an inquiry into franchising.
FCA director Stephen Giles says if there is an issue in franchising it is a national issue and a state inquiry will simply create additional red tape and bureaucracy.
The inquiry, which will be chaired by franchisee Chris Bothams, manager of the South East Metro Small Business Centre, follows cries for help from Jack Cowin’s Competitive Foods.
Competitive Foods operates 46 KFC franchises in Western Australia, as well as 300 Hungry Jack’s outlets around Australia. US-based Yum Foods International, which owns the KFC brand, is refusing to renew the WA franchise licenses.
The issue is that there is no obligation on the franchisor to act in good faith at the end of the franchise agreement. As a result, the franchisor can take over and operate the franchise at the end of the franchise term, as Yum Restaurants looks set to do with the KFC restaurants in WA.
The terms of the WA inquiry into franchising are much broader, and include reviewing the adequacy of existing legislative provisions, both state and federal, and identifying whether emerging trends in the franchising industry disclose patterns of unconscionable conduct that may not be covered under existing laws
Giles says: “The FCA position is we don’t want to retract from potential legitimacy of any issues. We would like to engage with the relevant federal bodies and our own franchisor and franchisee members to address the issue.”
Meanwhile, the South Australian Government has followed the WA Government’s lead and announced a franchising inquiry. On 24 October the Economic and Finance Committee decided to hold an inquiry into the “efficacy of current laws regulating the franchisee/franchisor relationship”.
The committee will focus on laws relating to:
- disclosure of information to potential franchisees;
- dispute resolution processes
- formalities required of a franchisor who wishes to conduct a franchise; and
- any other matter considered relevant by the committee.
Giles says state government interference in franchising is a big threat to the industry. The FCA is seeking to meet with the WA Small Business Minister. “The reality is we will seek to engage with the two governments and at least try to limit the extent of duplication and additional bureaucracy of inquiry immediately on the back of federal inquiry.”
The federal government ordered an inquiry into franchising disclosure laws during 2006-07. The Matthews Report recommended changes to the Franchising Code of Conduct, those accepted by the federal government will take effect March 1, 2008.
The FCA has also doubts about who is leading the WA inquiry. “The Franchise Council is also concerned that Mr Bothams, a former franchisee with very limited experience, may or may not be either sufficiently objective or capable to handle any such inquiry,” Giles says.