David Van (Victoria, Liberal Party) Share this | Hansard source

While I will not be supporting this bill, I rise to thank Senator O'Neill for all her efforts on this bill, the Franchising Laws Amendment (Fairness in Franchising) Bill 2020, and for her tireless efforts around franchising. This is a speech I've long wanted to give in this place. For a bit of background, prior to being elected to the Senate I worked very closely with the franchising sector. I was a voluntary director on the Australian Association of Franchisees, which Senator Whish-Wilson mentioned earlier. I have worked with most of the organisations that he named.

The Parliamentary Joint Committee on Corporations and Financial Services—Senator O'Neill and all the members of that committee, particularly Michael Sukkar, as the chair, and, before him, Steve Irons—did an incredibly thorough investigation of franchising. I sat in on almost all of those inquiries. I'm probably one of the few senators—probably one of the few people on the planet—who read all of the submissions to that inquiry. Those submissions were harrowing, absolutely harrowing. They were about the effects that the power imbalance in franchising has on small businesses.

Senator Farrell interjecting—

Senator Farrell, I'll come to that. I'll take your interjections any time, because you're just going to help me reinforce my points.

Those stories were harrowing. They were about the complete and utter devastation caused to people's lives by the power imbalance which is written into the code. The code is not the right instrument for this. While I've said I'm not going to support Senator O'Neill's bill, it's not because it's not a step in the right direction—it truly is. The government's legislation is pending. As everyone in this place knows, extraordinary consultation has been going on about that. The pending legislation which will come before this place goes an awful lot further, so why take one small step when we can take a giant leap?

On that, the inquiry heard about the power imbalance that I talked about before. The inquiry gave franchisees the ability to have their voices heard. The report and the recommendations that came forward were incredibly important. There's no doubt that the franchising code is effectively broken. There have been numerous attempts to reform the franchising code since it was introduced in 1998, including a complete rebuild of the code in 2015. As Senator O'Neill mentioned, there have been 17 inquiries into this code, yet we still run into these systemic problems and the ongoing issues that occur within the sector.

The submissions and testimonies of franchisees, coupled with the near criminal responses from the leadership of some notable franchisors, show the drastic need for reform to help protect the investments of franchisees. That's not to say that franchising cannot work or doesn't work. There are an incredible number of wonderful franchise systems out there. I'd probably say that the split is something like 90 per cent good versus 10 per cent bad. There are strong examples of franchising working. They're powerful businesses that do a lot to grow the economy. They employ hundreds of thousands of people and contribute billions to the Australian economy.

The problem with Senator O'Neill's bill is that it just doesn't go far enough. I think it's a valid attempt and I do congratulate her for taking on that role and standing up in her caucus to do so; however, we need to look at what further we can do. The draft amendments to the franchising code that this government is suggesting will improve disclosure on significant capital expenditure, supplier rebates and marketing funds. It will prevent franchisors passing on legal costs to franchisees in respect of the variation of franchise agreements. It will improve end-of-franchise relationships, including cooling-off, early-exit, termination and restraint-of-trade arrangements. It will strengthen dispute resolution options and double penalties to deter poor conduct in the sector. No-one in this place should be under any illusion: there is a lot of poor conduct in this sector. Given how important franchising is to our economy, that needs to be stamped out. I strongly believe in the way that the Morrison government is tackling this issue. I believe it is going to bring a lot of change in the sector, far more than Senator O'Neill's bill would.

That doesn't mean that we can't go further. Some of the reforms that I've suggested include looking at the base legislation of franchising. Is an industry code the right way to do it? Is having it sit in consumer law the best protection that we can provide to these small businesses? My argument would be that it's not and I'll explain why I think that. If you look at franchising at its simplest, it is quite literally one business saying to another, 'We want to grow our business, so if you contribute some capital and some sweat equity we'll all be able to grow.' Any way you look at it, that is a form of capitalisation of another business. As a form of capitalisation it should be treated as an investment. It's not the same as an equity investment or a debt investment, but it's an investment nonetheless. Therefore, long term, because these changes won't come about simply or easily, we should commit to looking at changing the franchising sector from being covered by the Australian Consumer Law to being covered by the Corporations Act. I think it would sit in there much more solidly than it does under the Consumer Law. That would address some of the franchisor behaviour that goes on. I can point my fellow senators to any number of franchise agreements that lock in ways whereby only the franchisor is ever going to be the winner out of the agreement, whether it be through the churning and burning that was mentioned before or by putting all the onus for capital leases and leases for premises et cetera on the small business franchisee. It locks in disadvantage, locks in a power imbalance. That is something we do need to resolve.

What I've proposed to my colleagues and leadership is that the franchising sector be put before the Australian Law Reform Commission for review. It should be looked at from the grassroots up as to how we can better structure legislation around franchising to give maximum protection to small business while enabling franchising to succeed and truly be the generator of wealth for our economy that we've seen it can be. We want to see the best franchising systems—and we all know there are some very successful ones out there—succeed even more than they do now. We must stamp out this power imbalance such that it's gone forever and we no longer hear the stories of people losing their houses. I think the best example I can provide is of the Pizza Hut franchisees who were told overnight that they were going to have to sell pizzas for under $5. That didn't come with a subsidy from the franchisor. That didn't come with any rebate for selling those pizzas below cost. They were forced to do it, and the franchising code and their franchising agreement which was covered by that code allowed the franchisor to do that. That put an incredible number of small businesses to the wall and that cannot be allowed to happen again.

So, while I sadly won't be supporting Senator O'Neill's bill, I thank her for her tireless efforts in this and thank every member of the parliamentary joint committee, including Senator Whish-Wilson for his work on that committee. I think we have further to go. I'd to like to see both sides of parliament work on this. Senator O'Neill and I have discussed this quite regularly, and I hope to keep that line of communication open on how we can improve the franchising sector.