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Strengthening Franchisee Protections in Australia's Evolving Franchising Landscape

The franchising sector in Australia stands at a significant junction. Landmark court decisions and essential regulatory changes are setting new precedents and altering the operational dynamics between franchisors and franchisees. The Federal Court’s ruling in the Mercedes-Benz dealership case last year and the Australian Government's detailed response to the Independent Review of the Franchising Code of Conduct are key developments spotlighting the evolving and often contentious dynamics within the industry.

Background of Industry Transformations

The Mercedes-Benz Case Overview

The recent Federal Court ruling concerning the Mercedes-Benz dealership controversy has profound implications for franchise agreements across Australia. Mercedes-Benz shifted to a fixed pricing structure, which mirrored Tesla's model, significantly altering the traditional norms of Australian franchising. Dealers argued that Mercedes-Benz unilaterally changed their agreements, reducing their roles from dealers to mere agents working on commission, purportedly leading to an average financial loss of $22 million per dealer. The court sided with Mercedes-Benz, emphasising the legal enforceability of non-renewal clauses within franchise contracts and setting a significant legal precedent regarding the balance of power within franchisor-franchisee relationships.

Government Response to Code Review

Simultaneously, the Australian Government published its response to the Independent Review of the Franchising Code of Conduct. Although the review declared the Code fit for purpose, it suggested several amendments to better address the changing landscape of franchise operations. These recommendations aimed to broaden protections, enhance dispute resolution mechanisms and ensure the Code's relevancy amid evolving business models.

Analysing the Need for Enhanced Franchisee Protections

Despite governmental and judicial efforts, many stakeholders, including the Australian Association of Franchisees (AAF), believe that the reforms do not sufficiently protect franchisees, especially the smaller operators who are often the most vulnerable.

Challenges Faced by Franchisees

Franchisees face multiple challenges in the current regulatory environment:

  • Resource Limitations: Small franchisees often lack the resources to engage in prolonged legal battles or to navigate complex regulatory landscapes effectively.

  • Reactive Regulatory Measures: The current system, where the Australian Competition and Consumer Commission (ACCC) can only act post-harm, does not prevent the initial occurrence of injustices against franchisees.

  • Inadequate Representation: Smaller franchisees, in particular, may not have sufficient representation in negotiations and regulatory discussions, leading to an imbalance in power and protections.

Strengthening the ASBFEO's Role

One of the pivotal changes proposed is enhancing the role of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO). This includes legislative amendments granting the ASBFEO the authority to publicly name non-compliant franchisors, a move expected to deter unethical behaviour and promote fairer dealings within the industry. Expanding the Tax Concierge Service to include low-cost legal advice on dispute resolution will further empower smaller businesses, providing them with essential tools to safeguard their interests.

Proposed Licensing of the Franchising Industry

A controversial recommendation is to explore the feasibility of introducing a licensing regime for franchising. This initiative would regulate the franchisee-franchisor relationship more rigorously, ensuring transparency and fairness in franchising agreements.

Immediate and Long-Term Recommendations

Quick Wins for Franchisees

The government's acknowledgment of the need for immediate implementation of certain recommendations provides some hope for quick relief. Enhancing the visibility of the Franchise Disclosure Register and developing best practice guides, in consultation with the sector and the ACCC, are seen as achievable short-term goals that could significantly benefit franchisees by providing better insights and support mechanisms.

Long-Term Strategic Changes

Long-term recommendations focus on structural changes and more profound regulatory reforms:

  • Educational Initiatives: Increasing educational support for franchisees to better understand their rights and responsibilities under the new regulations.

  • Community Engagement: Strengthening community ties among franchisees to foster a collaborative environment where collective bargaining and shared strategies can lead to more equitable outcomes.

  • Regulatory Reforms: Implementing comprehensive changes to the Franchising Code of Conduct to ensure it remains relevant and effective against a backdrop of evolving business models and market conditions.

Conclusion: The Role of AAF and Advocacy for Change

The AAF's role in advocating for franchisee rights is more critical than ever. As these regulatory changes begin to take effect, the need for a vigilant and proactive advocacy body to ensure that the interests of franchisees are adequately protected cannot be overstressed. This ongoing effort will require a sustained commitment from all stakeholders to achieve a balanced and equitable franchising environment. Joining the AAF can significantly enhance your ability to navigate the complexities of the changing franchising industry. Take advantage of the AAF’s resources, community and advocacy to secure your business’s future and ensure a fair and equitable franchising landscape.

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