Deborah O'Neill (NSW, Australian Labor Party) Share this | Hansard source

I am pleased today, as a Labor senator, to rise and speak on the Franchising Laws Amendment (Fairness in Franchising) Bill 2020. The bill is a practical, albeit limited, response to the work that was started by the Parliamentary Joint Committee on Corporations and Financial Services. They delivered a unanimous report with the support of than none other John 'Wacka' Williams, the very effective Nationals senator who delivered the fairness in franchising bill inquiry. This is a bill for fairness for small businesses. It proposes urgently needed and necessary reforms to add appropriate and meaningful balance to a multibillion dollar industry that was shown to be inappropriately regulated, with an ineffective code of conduct and rife with unjust practices.

The franchising sector produces almost seven per cent of our GDP and is ubiquitous across the country. I think Australians would struggle to name a town or suburb that doesn't feature one franchise business or another, whether it be a petrol station, a cafe or a fast-food restaurant. This sector has been the subject of 17 inquiries over the last 30 years due to the chronic and endemic issues that are continually played out in the media and through the trials and traumas of hundreds of small businesses across the country. We cannot delay reform any longer. We don't need another inquiry. We don't need another task force or another roundtable. This bill takes long overdue action.

As the inquiry report—and I remind senators that it was a unanimous report—noted:

… the evidence to this inquiry indicates that the problems, including exploitation in certain franchise systems, are systemic.

…   …   …

… the franchise agreement embeds the power disparity between franchisor and franchisee for the duration of the contract, including the exit arrangements.

The joint parliamentary committee received a raft of evidence about how the abuse of contractual power can manifest in a franchise agreement. Further, the committee received evidence that pointed to shortcomings in the current regulatory responses, such as the duty to act in good faith and the unfair contract terms provisions. We found disgusting practices such as churning and burning. For those who don't know, 'churning' refers to the repeated sale by the franchisor at a single site of a failed franchise to a new franchisee. 'Burning' refers to continually opening new outlets, some of which are unlikely to be viable, to profit from the upfront fees that the franchisor acquires while leaving existing outlets to struggle and to close. Both churning and burning, while making money for the franchisor, sometimes hundreds of thousands of dollars a turn, leave franchisees emotionally and financially battered and their dreams of owning their own business in tatters.

The extent and breadth of misconduct and exploitation by franchisors within the franchisee sector demonstrate that disclosure and transparency alone, while vitally important, are an insufficient response to power and information asymmetry. That is part of what this bill seeks to do. It will empower the small business ombudsman to recommend arbitration in the same way it can for the dairy code. The inability of franchisees to effectively pursue disputes or breaches of contract through the current framework was one of the key findings of the inquiry. My colleagues from all parties delivered this unanimous report, noting many cases of intimidation and bullying. Justice in the courts was not available because the powerful and those loaded up with dollars had access but a franchisee who had been ruined had no recourse. The bill will provide an optional binding alternative dispute resolution that is determined by an expert in the field. It will also furnish the ombudsman with the power to name and shame those who don't take the recommendation for arbitration.

The reforms proposed in this bill are interdependent and form a holistic framework to reshape the landscape for the current franchising sector. The bill will increase the quantum of penalties for breaches of an industry code in the Competition and Consumer Act 2010 from $66,000 up to a potential $10 million or 10 per cent of the annual turnover of the corporation, or three times the benefit that the corporation directly or indirectly obtained from the breach, whichever is higher. In 2019 the ACCC recommended to a parliamentary inquiry into franchising to increase the penalties of the breaches from $66,000 to $10 million to deter bad behaviour from franchisors.

The imbalance of power that this inquiry found was unfortunately accompanied by an imbalance in education. The upgrade of engagement capacity with the ombudsman will allow the ombudsman to address this by providing trusted and unbiased help. Small businesses are being driven into economic peril by a sector that has shown it is incapable of self-policing or renewal. As was reported in the inquiry, there are deeply rooted cultural problems that will not be resolved by franchisors replacing a few senior executives.

Australian businesses have waited long enough; I have waited long enough. Labor is standing up for franchisees here today. We are sick and tired of waiting for the government to get its act together and implement the recommendations in the committee's report. We cannot rebuild our economy when such a large sector that engages seven per cent of the GDP remains institutionally broken and unjust. I believe in small businesses. I come from a family that came to this country to build a future and they did that by building a small business. So many hardworking immigrants have seen franchising as a way to learn safely about the Australian business sector only to be totally ripped off by people exploiting the current structures. They need this legislation to provide protection. There is much, much more that the government could do but, from opposition, this is our significant effort to support small businesses at a critical point of need. I urge the government and the crossbenchers to stand with Australian franchisees and pass this bill.