The National Franchisee Coalition has outlined its wish list for the federal government’s review of the Franchising Code of Conduct, including a specific definition of good faith and measures to combat the issue of “churning”.
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The NFC, which was set up to support fair and ethical franchising, wants the notion of good faith to be incorporated into the code, which will undergo a review after submissions close next week.
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According to NFC founder and chairman Peter Coventry, who is based in WA, the current code offers franchisees little protection from “rogue” franchisors.
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“Without clear expression of the mutual obligation of good faith in the code, supported by robust and fair penalties for breaches, the code remains something of a toothless tiger that allows opportunistic franchisors to operate,” Coventry said in a statement.
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“Good faith in franchising has never been anything more than addressing the power imbalance in the franchisee-franchisor relationship.”
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According to the NFC, the review should address the following three issues:
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1. Good faith
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The NFC believes the code should incorporate a specific definition of “good faith” so that acting in good faith means acting fairly, honestly, reasonably and cooperatively.
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The federal government chose not to include a good faith clause in its 2009 review of the code, but the 2013 review has left the possibility open.
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While advocates say a good faith clause would ensure franchisors cannot act in a way that is detrimental to franchisees, the Franchise Council of Australia has argued such requirements are already implied in national law.
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According to the NFC, the FCA’s resistance towards a good faith clause is “akin to opposing motherhood”.
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2. Penalties
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The need for penalties goes “hand in glove” with the need for penalties that deter poor franchisor behaviour and appropriately punish franchisors for opportunistic behaviour, the NFC said.
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3. End of term arrangements
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According to the NFC, end of term arrangements remain a contentious issue – one which has fuelled the practice of “churning” in the franchise industry.
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Churning, as defined by the NFC, is where franchisors terminate a franchise agreement because of perceived breaches, or refuse to renew a franchise agreement, and then move to take over the franchise or on-sell it without paying for the goodwill, and pay little or nothing for the franchisee’s fixtures and equipment.
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Where a franchisor declines to renew their franchise agreement and either takes over the business or sells it on to a third party, the NFC said the code should require franchisors to pay the departing franchisee the value of the goodwill developed by the non-renewed franchise, plus fair compensation for plant and equipment.
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Earlier this week, a former Bakers Delight franchisee told StartupSmart how the company “stole” his business after his franchise agreement expired and he indicated a desire to go independent.
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Coventry said the NFC’s proposed measures would “go a long way” to restoring the reputation of the franchise industry, and would make it safer and more attractive for people to invest.
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“These issues should be addressed, and these recommendations adopted, because it will only result in better outcomes for both franchisees and franchisors,” he said.
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“It will make both work harder for each other’s benefit, which is the ultimate win-win outcome.”
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