Proposed reforms to franchising laws, announced recently by the Federal Government, have been praised as "pragmatic and reasoned" by a franchising law specialist.
Deacons partner Stephen Giles commended the Government for refusing to "succumb to intense lobbying by some franchisee activists and academics", announcing a series of relatively minor reforms which he described as a "further endorsement of the fundamental effectiveness of the current regulatory regime".
The proposed reforms to the Franchising Code of Conduct and Trade Practices Act 1974, which were announced last week, include amending the unconscionable conduct provisions of the Trade Practices Act to clarify that the provisions relate not just to the settling of a contract, but also the terms and conditions of contracts and the ongoing behavior of parties to a contract. Acknowledging that the term "unconscionable conduct" has been the subject of some uncertainty, the Government has also explicitly encouraged the ACCC to conduct test cases to obtain guidance from the court regarding the term's scope, rather than introducing a statutory definition.
The Government has also proposed strengthening the ACCC's powers to allow it to undertake random audits and to "name and shame" franchisors who engage in unscrupulous behaviour by issuing public warnings. Giles believes these are beneficial reforms that represent a "vote of confidence" by the Government in the ACCC's history of effective regulation of this area, and he believes they will be welcomed by industry.
"I think the industry would regard the extension of those ACCC powers as being appropriate, because I think they see the ACCC as being a vigilant and very effective regulator," he says.
To the chagrin of some lobbyists, the Government has rejected suggestions to implement a statutory duty of good faith, with Giles applauding this move as it avoids the introduction of further regulatory uncertainty.
"I think what that does - it's a bit like when 'unconscionable conduct was introduced' - is just introduce a new vague concept which people have to then go and figure out what it means," he said.
He also applauded the Government's decision to reject the call from some lobbyists for the introduction of a requirement for franchisors to be registered, believing it would add unnecessary costs for franchisors, adding no benefit and perhaps leading to worse regulatory outcomes.
"There was some argument to say that [having] franchisors register was somehow going to improve the franchise sector. But the reality is ... and everyone pretty much universally said that if you register franchisors, people will assume that someone has actually checked everything, and they'll less due diligence, and they won't get advice, and it will actually lead to worse levels of compliance," he explained. So unless you're going to go and vet franchise documents, then it's just mere registration, and all that would do was add compliance costs to franchisors with no real benefit."
He says overall, the Government has taken a "common sense approach" to the reform process that has been very well received.
"At the end of the day, the changes are improvements around the edge of the regulatory framework rather than fundamental reforms or changes. So they've endorsed a regulatory framework which I think is generally acknowledged to have operated effectively."
- Zoe Lyon