Peter Hendy (Eden-Monaro, Liberal Party) Share this | Hansard source

I rise to support the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014. I do not intend to speak for very long because I just want to make a few points. This bill is a significant advancement on the existing laws regarding franchising. As the Minister for Small Business stated in his second reading speech introducing the bill, the purpose of this bill is to enable the government to include civil penalty provisions in a forthcoming new franchising code. He noted that a breach of civil penalty provisions will expose a franchisor or franchisee to an infringement notice issued by the ACCC or a pecuniary penalty imposed by the court.

As I have previously told the chamber, as a former chief executive of the Australian Chamber of Commerce and Industry, I know a bit about this topic and I am well aware of the difficult balancing act that government regulation—rightfully, I might add—has to play in the relationship between franchisors and franchisees. Indeed, further to that I was personally involved in the introduction of the Franchising Code of Conduct, which was introduced by the Howard government in 1998. In 1998 I was the Chief of Staff of the Minister for Small Business. I was involved in a lot of the negotiations and know how difficult this area can be.

The franchising sector has been the subject of eight reviews at either the federal or state level over recent years. The last was an independent review by Mr Alan Wein in 2013. As the Wein review summarises it:

The Code is a prescribed, mandatory industry code under Part IVB of the CCA—

The Competition and Consumer Act. The report states:

Broadly, the Code requires franchisors to disclose specific facts to franchisees and to follow set procedures in their dealings with franchisees. The Code also provides a cost effective dispute resolution scheme for franchisors and franchisees.

The coalition government recognises that the franchise industry is a significant and growing part of the small business sector. A recent Griffith University survey indicated that franchising contributed more than $130 billion to the national economy and employed over 400,000 Australians. There are over 70,000 franchise business arrangements in Australia today.

The difficulty in dealing with regulation in this area is highlighted by the fact that there have been those eight reviews. This has created a high level of review fatigue and in moving forward in light of the recent review we are very cognisant of that fact. Indeed, the coalition government is committed to generating certainty in the sector and strengthening the effectiveness of the franchising code.

Mr Wein's 2013 report stated, 'We have a good franchise industry model in Australia,' but nonetheless recommended some reforms. Thus Mr Wein made 18 substantive recommendations in relation to the code and the Competition and Consumer Act 2010, which is the renamed Trade Practices Act 1974. He also recommended about 24 technical amendments to improve and clarify the code rather than change the underlying policy. He was examining issues such as good faith in franchising, the rights of franchisees at the end of the term of their franchising agreement, and provisions for enforcement of the code. The government has been considering those recommendations in coming to its conclusions.

Importantly, the Wein review also concluded that there was widespread industry support for introducing pecuniary penalties to deter breaches of the Franchising Code. Of course, the question of pecuniary penalties for breaches of the code has been considered many times in the past. The government believes that this will promote better practice in franchising, which will in turn make the sector more attractive to investors, both locally and internationally. It is an example of the government's pragmatic and balanced approach to industry regulation.

It also highlights our abiding commitment to support small business. That is vital to my electorate of Eden-Monaro. Eden-Monaro is a predominantly rural seat and as such it is heavily dependent on small business for jobs. The provision of sustainable jobs is the No. 1 issue in my electorate, along with cost-of-living pressures. We believe that these reforms will support the creation of jobs and small business in regional and rural Australia.

The key part of this bill is to allow for the introduction of penalties to give teeth to the Franchising Code. Substantial penalties of up to $51,000 will apply. However, while the bill will allow the potential for penalties in other industry sectors, it will not apply to other industry codes unless separate policy and regulatory action is taken to specifically introduce penalties under those codes.

The minister has noted that this bill is the first step in a new era of regulation for the franchising sector. The bill is part of the government's comprehensive package of reforms to improve the way the franchising sector is regulated, and we will bring forward a new Franchising Code of Conduct to be progressed later this year, subsequent to the passage of the bill that we are discussing today. The new code will enhance and update the current code and will introduce an overarching obligation for parties to a franchising agreement to act in good faith in their dealings with each other. This is something that many of those in the franchising community have been calling for over many years. It will provide a mechanism to deal with the diversity of issues that often stem from the unique interdependent relationships in franchising.

As the minister stated, the term 'good faith' under the code will have the same meaning as in common law, but we will be providing some guidance for participants around what might be considered good faith. These measures go to the heart of strengthening business relationships and will underpin the wider reforms that we are making to the franchising regulation. It is expected that the new Franchising Code of Conduct will be finalised soon and will take effect from 1 January 2015.

I conclude by noting that, under the last Labor government, 519,000 jobs were lost in small business, while the number of employing small businesses declined by 3,000. When Labor came to government, small business employed some 53 per cent of the workforce. It is now just 43 per cent. That is a devastating blow to small business. Do not forget that most franchise businesses are small businesses. In the end, the story is very simple: we highly value the franchising industry. As a result we have been going through the issues in a purposeful and methodical manner. We will get it right and will provide for a sustainable and strong franchising sector. I commend this bill to the House.

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