Bruce Billson (Dunkley, Liberal Party, Minister for Small Business) Share this | Link to this | Hansard source

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I move:

That this bill be now read a second time.

Today I introduce the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014.

This bill is the first step in the start of a new era in franchising. It is the start of an improved, fine-tuned regulatory system for the franchising sector, which represents a significant part of Australian small business.

The first franchising code was introduced by the Howard government in 1998.

The stated purpose of the Franchising Code of Conduct is 'to regulate the conduct of participants in franchising towards other participants in franchising'. And, overall, it has to be said that it has done this quite well over the years.

The code has been reviewed many times. There have been eight reviews into the franchising sector or how it is regulated, at the Commonwealth and state level, in the last eight years. It has been amended from time to time by governments on both sides of the divide to patch holes as they were identified. But it is now 16 years old and it is beginning to look its age.

That is why we will be introducing a new franchising code, one that simplifies and modernises the way franchising is regulated, one that fulfils our election commitment to refine the franchising code to strengthen its effectiveness, improve its responsiveness to the sector's unique commercial characteristics and tensions and guard against additional state-based regulation. For years in opposition, the coalition has campaigned for reform in the franchising code and committed to do so. Today is a tangible and substantial element of our election and policy vision.

The franchise industry is very important to the small business community, with around 73,000 units employing over 400,000 Australians and producing a sales turnover in excess of $131 billion annually.3 It gives the public access to successful Australian enterprises as well as some of the most recognisable international brands.

Indeed, the franchising sector displays great capacity for nurturing innovation and entrepreneurship; the majority of franchise systems in Australia are developed right here rather than being overseas imports. Through these measures, the government will ensure Australia maintains world-class franchising regulations to give this important sector the confidence and support it needs to flourish.

We want to promote growth in the sector, reduce red tape and make sure that all participants in the industry follow best-practice principles. The government is also committed to guard against separate and additional state regulation to maintain a consistent national framework.

The purpose of this bill is to enable the government to include civil penalty provisions in the new franchising code. A breach of a civil penalty provision will expose a franchisor or franchisee to an infringement notice issued by the ACCC or a pecuniary penalty imposed by the court. The question of pecuniary penalties for breaches of the franchising code has been considered many times in the past. Pecuniary penalties were recommended for breaches of the code by the 2008 parliamentary joint committee. Similar calls were made in 2008 by committee inquiries into franchising regulation legislation in South Australia and Western Australia.

In 2013, Mr Alan Wein conducted the most recent review of the franchising code. This independent review involved comprehensive stakeholder consultations across the franchising community and found that there was widespread industry support for introducing pecuniary penalties to deter breaches of the franchising code. The coalition welcomed the Wein review and its recommendations and at the time stated that it was a 'useful road map to franchise reform'.

Building on Mr Wein's recommendations and the strong feedback from stakeholders, in April 2014 this government took swift action to develop and release exposure drafts of the bill and the new franchising code for public comment. Feedback on the proposed reforms was very positive, receiving widespread support across the sector.

The ability to include civil penalty provisions in the Franchising Code is a key component of the reform package.

The Competition and Consumer Amendment (Industry Code Penalties) Bill 2014 will facilitate a change to the way the Franchising Code of Conduct is enforced by amending the Competition and Consumer Act to:

These measures will more effectively deter breaches of the code and enhance the enforcement tools available to the ACCC by allowing it to take rapid action when breaches of the code do occur. This will facilitate greater compliance across the sector and may assist in reducing the number of protracted, costly disputes.

This will promote better practice in franchising, which will, in turn, make the sector more attractive to investors, both locally and internationally. Penalties will not apply to other industry codes unless separate policy and regulatory action is taken to specifically introduce penalties under those codes.

The bill sets the upper limit for a pecuniary penalty for a contravention of an industry code at 300 penalty units, currently $51,000. The amount of an infringement notice issued by the ACCC for a code breach is 50 penalty units, $8,500, for a body corporate and 10 penalty units, $1,700, in any other case.

These penalties are reasonable and moderate. They represent a penalty amount with targeted application to provide a balanced, lighter-touch approach that will give the code teeth while preserving the co-regulatory principle of industry codes.

Pecuniary penalties will only apply to provisions of the franchising code that are fundamental to the purpose of the code and where noncompliance is likely to cause significant detriment to the other party.

By allowing the ACCC to issue an infringement notice for a breach of the code, the government adds increased flexibility and agility to the regulator's enforcement armory. Infringement notices allow breaches to be dealt with in a timely and cost-efficient manner without the need for a court order in appropriate circumstances.

As I said earlier, 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.

The government will bring forward a new Franchising Code of Conduct to be progressed later this year, subsequent to the passage of the bill. The new code will enhance and update the current code.

The new code will introduce an overarching obligation for parties to a franchising agreement to act in good faith in their dealings with each other. Introducing a specific duty to act in good faith will finally answer the calls from the franchising community and numerous reviews. It will provide a malleable tool to deal with the diversity of issues that often stem from the unique interdependent relationships in franchising. '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.

The obligation to act in good faith and the introduction of pecuniary penalties will promote better conduct, enhancing the attractiveness of franchising to entrepreneurs and investors. These measures go to the heart of strengthening business relationships and will underpin the wider reforms that we are making to franchising regulation.

The new code will also:

The proposed reforms will strike the right balance between the rights and obligations of franchisors and franchisees, while maintaining the freedom of the parties to make their contract as they see fit in order to provide certainty.

Further, they will result in an estimated compliance saving of $8.6 million annually for the sector.

The new code regulations will be progressed through the federal Executive Council later this year once the bill is passed by the parliament. The new franchising code is expected to take effect from 1 January 2015.

I would like to thank the officials, formerly in the Department of Industry and now transferred to the Treasury, for their ongoing and dedicated work in the development of this reform package. I thank them for their diligence and their expertise. I commend this bill to the House and welcome in a new era in franchising.

Debate adjourned.