Division Description Changes — Bills — Franchising Laws Amendment (Fairness in Franchising) Bill 2020; Second Reading — 22nd Feb 2021

Change	Division
senate vote 2021-02-22#1 Edited by mackay staff on 2021-03-12 12:35:01	Title Bills — Franchising Laws Amendment (Fairness in Franchising) Bill 2020; Second Reading Franchising Laws Amendment (Fairness in Franchising) Bill 2020 - Second Reading - Agree with the bill's main idea Description ~~<p class="speaker">Deborah O'Neill</p>~~ <p>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.</p> <p>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.</p> The majority voted in favour of a [motion](https://www.openaustralia.org.au/senate/?gid=2021-02-22.24.7) to agree with the bill's main idea, which is known as giving it a [second reading](https://peo.gov.au/understand-our-parliament/how-parliament-works/bills-and-laws/making-a-law-in-the-australian-parliament/). This means that the bill will now be discussed in greater detail. ### What is the boy's main idea? The bill was [introduced in order to](https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id:legislation/billhome/s1271): * enable the Australian Small Business and Family Enterprise Ombudsman to appoint a mediation and franchising adviser* to assist in resolving franchising disputes where mediation has failed, or where both parties agree to arbitration;* * give the ombudsman the power to assist with multi-party mediation* and arbitration in franchising disputes where multiple parties have identical issues that require resolution; and* * increase the civil penalties provisions for breaching the Franchising Code of Conduct. ~~<p>As the inquiry report—and I remind senators that it was a unanimous report—noted:</p>~~ ~~<p class="italic">… the evidence to this inquiry indicates that the problems, including exploitation in certain franchise systems, are systemic.</p>~~ ~~<p class="italic">…   …   …</p>~~ ~~<p class="italic">… the franchise agreement embeds the power disparity between franchisor and franchisee for the duration of the contract, including the exit arrangements.</p>~~ <p>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.</p> <p>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.</p> <p>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.</p> <p>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.</p> <p>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.</p> ~~<p class="speaker">Slade Brockman</p>~~ <p>I will start by, just as Senator O'Neill did, acknowledging the work in this space of members on this side, particularly the long and enduring interest of Senator 'Wacka' Williams into this particular topic. That is a tradition that has been carried on by a number of others in this place. We have been joined recently by Senator Ben Small, who has a very strong background in the small business sector. We have Senator David Van sitting in the chamber at the moment, who has a keen and abiding interest in this topic as well. So former Senator Williams's concerns expressed over a great number of years in this place are being continued and acted upon by those on this side. For the small business community, there is nothing better than a strong and durable economy. We have faced an extraordinary shock to the global economy, an extraordinary shock to the Australian economy over the past 12 months but, in a piece of very good news today, I will just inform the chamber that Fitch has reaffirmed Australia's AAA credit rating. They said:</p> <p class="italic">The Australian economy has weathered the pandemic well compared with peers. … This performance reflects successful virus containment and an effective fiscal and monetary response consistent with a policy framework that has underpinned the economy's resilience to shocks over the medium term.</p> <p>One of the drivers of this is our small business sector and one of the key drivers of the small business sector is our franchise sector and, in particular, the many, many small business franchisees. So with respect, Senator O'Neill, I understand where you're coming from with this bill but what you are doing is misguided and it fails completely to acknowledge the commitment of this government to the small business sector, to the franchise sector, and what this government has done and what this government is doing to assist this sector. It completely fails to acknowledge those facts. I think that comes down to a very simple proposition of why that's the case—because those on the other side do not understand small business and have never understood small business. The franchising sector of our economy is predominantly made up of small businesses, so those on the other side will always struggle to understand it.</p> <p>Franchising is a very significant part of the Australian economy. It's a $154 billion sector in the 2020-21 financial year. There are around 91,000 franchisees across Australia and 1,200 franchise systems, with half a million people employed within the franchise sector. And, as I have said, almost all of the franchise sector is made up of small businesses. When we think of the franchise sector, all too often it's too easy to think of just your retail fast food chains, be it a McDonald's or a Coffee Club, or perhaps a chain of hotels that operates under a franchise model. That's the obvious part of the franchising sector. But when you think about it a little more deeply, you see that the franchising sector operates right throughout the economy, whether it's in sign-making, whether it's in graphics and printing businesses, whether it's in the construction sector. It also operates in the wholesale trade sector, including the food sector. The retail trade sector is obviously the predominant sector, but we also see it significantly in the transport sector. We see it in the financial services sector, in rental, hiring and real state services. We see it in things like administrative support services such as mowing services, in trampoline parks, swim schools, pet care services, auto repair shops, auto servicing, IT, hairdressing and beauty salons. The franchising sector spreads across the entire economy, and that means we have a diverse range of small businesses, a diverse range of franchising models and a diverse range of Australians who are working and living in these businesses.</p> <p>We, as a government, have to support them in a responsible manner, to acknowledge that what we do is a very valuable part of the economy and to put in place a regulatory structure that actually delivers for those small businesses right across the Australian economy. Support for small and medium sized family businesses and the franchising sector is something the Australian government does have as a very important priority, and we absolutely acknowledge the issues that came out of the Fairness in franchising report. The report identified a range of misconduct by franchisors. Egregious conduct was not widespread but it was present and did significantly and devastatingly impact on a number of franchisees. In August 2020 the Morrison government announced its commitment to introduce stronger protections and greater transparency for the franchising sector. In fact, the government has already outlined a suite of reforms to restore confidence in this sector. I must say, I think a large part of the sector demonstrated its confidence through its continuing and successful operation throughout the pandemic year. But to add to that, we want to lift franchisor standards of conduct and improve the information available to all franchisees. Draft amendments to the franchising code have been released. These include such things as improving disclosure on significant capital expenditure, supplier rebates and, most importantly, marketing funds. Draft amendments also include preventing franchisors from passing on legal costs to franchisees and retrospective variations to franchise agreements to improve end-of-franchise relationships including cooling-off periods, early exits, terminations and any restraint-of-trade arrangements. They also include strengthening the dispute resolution options and doubling penalties to deter poor conduct in this sector. The government will provide franchisees greater protection by ensuring they have the information they need before they enter a franchise agreement.</p> <p>Senator O'Neill's bill does not address these much-needed protections. The government will implement a stronger framework to lift franchisor standards of conduct. We're committed to timely implementation of reform, to restore confidence in the franchising sector and to getting these reforms right. This will mean working with the sector to make sure that the implementations of the reforms are done properly. In particular, that means working with that great diversity in the franchising sector I spoke about earlier. This is not a one-size-fits-all sector. This is an extraordinarily complex sector. It has an extraordinary number of participants in it and a large number of different business models. The idea that one size will fit all in such an environment just shows how little understanding of the small-business sector those on the other side have.</p> <p>The government's response will comprehensively address a much larger range of issues identified in the <i>Fairness in franchising </i>report than the few limited measures that appear in Senator O'Neill's private senator's bill. That would amount to a piecemeal approach, an approach which doesn't address many of the systemic problems identified in that report, and fails to take into account that great diversity and variation in franchising that we see in the Australian economy.</p> <p>I know my colleagues have contributions to make as well, so I will curtail my remarks there. But let me just say that those on this side of the chamber are the strongest supporters of our franchise sector, the strongest supporters of franchisees, small-business people who are out there trying to do the best for themselves, their families and their employees. We certainly have their backs.</p> ~~<p class='motion-notice motion-notice-truncated'>Long debate text truncated.</p>~~

~~Deborah O'Neill~~
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.
The majority voted in favour of a [motion](https://www.openaustralia.org.au/senate/?gid=2021-02-22.24.7) to agree with the bill's main idea, which is known as giving it a [second reading](https://peo.gov.au/understand-our-parliament/how-parliament-works/bills-and-laws/making-a-law-in-the-australian-parliament/). This means that the bill will now be discussed in greater detail.
### What is the boy's main idea?
The bill was [introduced in order to](https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id:legislation/billhome/s1271):
* *enable the Australian Small Business and Family Enterprise Ombudsman to appoint a mediation and franchising adviser to assist in resolving franchising disputes where mediation has failed, or where both parties agree to arbitration;*
* *give the ombudsman the power to assist with multi-party mediation and arbitration in franchising disputes where multiple parties have identical issues that require resolution; and*
* *increase the civil penalties provisions for breaching the Franchising Code of Conduct.*
~~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.
~~Slade Brockman~~
I will start by, just as Senator O'Neill did, acknowledging the work in this space of members on this side, particularly the long and enduring interest of Senator 'Wacka' Williams into this particular topic. That is a tradition that has been carried on by a number of others in this place. We have been joined recently by Senator Ben Small, who has a very strong background in the small business sector. We have Senator David Van sitting in the chamber at the moment, who has a keen and abiding interest in this topic as well. So former Senator Williams's concerns expressed over a great number of years in this place are being continued and acted upon by those on this side. For the small business community, there is nothing better than a strong and durable economy. We have faced an extraordinary shock to the global economy, an extraordinary shock to the Australian economy over the past 12 months but, in a piece of very good news today, I will just inform the chamber that Fitch has reaffirmed Australia's AAA credit rating. They said:
The Australian economy has weathered the pandemic well compared with peers. … This performance reflects successful virus containment and an effective fiscal and monetary response consistent with a policy framework that has underpinned the economy's resilience to shocks over the medium term.
One of the drivers of this is our small business sector and one of the key drivers of the small business sector is our franchise sector and, in particular, the many, many small business franchisees. So with respect, Senator O'Neill, I understand where you're coming from with this bill but what you are doing is misguided and it fails completely to acknowledge the commitment of this government to the small business sector, to the franchise sector, and what this government has done and what this government is doing to assist this sector. It completely fails to acknowledge those facts. I think that comes down to a very simple proposition of why that's the case—because those on the other side do not understand small business and have never understood small business. The franchising sector of our economy is predominantly made up of small businesses, so those on the other side will always struggle to understand it.
Franchising is a very significant part of the Australian economy. It's a $154 billion sector in the 2020-21 financial year. There are around 91,000 franchisees across Australia and 1,200 franchise systems, with half a million people employed within the franchise sector. And, as I have said, almost all of the franchise sector is made up of small businesses. When we think of the franchise sector, all too often it's too easy to think of just your retail fast food chains, be it a McDonald's or a Coffee Club, or perhaps a chain of hotels that operates under a franchise model. That's the obvious part of the franchising sector. But when you think about it a little more deeply, you see that the franchising sector operates right throughout the economy, whether it's in sign-making, whether it's in graphics and printing businesses, whether it's in the construction sector. It also operates in the wholesale trade sector, including the food sector. The retail trade sector is obviously the predominant sector, but we also see it significantly in the transport sector. We see it in the financial services sector, in rental, hiring and real state services. We see it in things like administrative support services such as mowing services, in trampoline parks, swim schools, pet care services, auto repair shops, auto servicing, IT, hairdressing and beauty salons. The franchising sector spreads across the entire economy, and that means we have a diverse range of small businesses, a diverse range of franchising models and a diverse range of Australians who are working and living in these businesses.
We, as a government, have to support them in a responsible manner, to acknowledge that what we do is a very valuable part of the economy and to put in place a regulatory structure that actually delivers for those small businesses right across the Australian economy. Support for small and medium sized family businesses and the franchising sector is something the Australian government does have as a very important priority, and we absolutely acknowledge the issues that came out of the Fairness in franchising report. The report identified a range of misconduct by franchisors. Egregious conduct was not widespread but it was present and did significantly and devastatingly impact on a number of franchisees. In August 2020 the Morrison government announced its commitment to introduce stronger protections and greater transparency for the franchising sector. In fact, the government has already outlined a suite of reforms to restore confidence in this sector. I must say, I think a large part of the sector demonstrated its confidence through its continuing and successful operation throughout the pandemic year. But to add to that, we want to lift franchisor standards of conduct and improve the information available to all franchisees. Draft amendments to the franchising code have been released. These include such things as improving disclosure on significant capital expenditure, supplier rebates and, most importantly, marketing funds. Draft amendments also include preventing franchisors from passing on legal costs to franchisees and retrospective variations to franchise agreements to improve end-of-franchise relationships including cooling-off periods, early exits, terminations and any restraint-of-trade arrangements. They also include strengthening the dispute resolution options and doubling penalties to deter poor conduct in this sector. The government will provide franchisees greater protection by ensuring they have the information they need before they enter a franchise agreement.
Senator O'Neill's bill does not address these much-needed protections. The government will implement a stronger framework to lift franchisor standards of conduct. We're committed to timely implementation of reform, to restore confidence in the franchising sector and to getting these reforms right. This will mean working with the sector to make sure that the implementations of the reforms are done properly. In particular, that means working with that great diversity in the franchising sector I spoke about earlier. This is not a one-size-fits-all sector. This is an extraordinarily complex sector. It has an extraordinary number of participants in it and a large number of different business models. The idea that one size will fit all in such an environment just shows how little understanding of the small-business sector those on the other side have.
The government's response will comprehensively address a much larger range of issues identified in the Fairness in franchising report than the few limited measures that appear in Senator O'Neill's private senator's bill. That would amount to a piecemeal approach, an approach which doesn't address many of the systemic problems identified in that report, and fails to take into account that great diversity and variation in franchising that we see in the Australian economy.
I know my colleagues have contributions to make as well, so I will curtail my remarks there. But let me just say that those on this side of the chamber are the strongest supporters of our franchise sector, the strongest supporters of franchisees, small-business people who are out there trying to do the best for themselves, their families and their employees. We certainly have their backs.
~~Long debate text truncated.~~