ROSS GREENWOOD:
Just a little while ago we had the Minister for Small Business Mr Bruce Billson on the program to have a chat about a few bits and pieces but I thought it worthwhile to get him back on because there’d been a few changes taken place including today something that we think on this program is well overdue. Even earlier this week, we were telling you about the way that we thought that some businesses inside franchises were really being significantly disadvantaged. Individuals who had gone out there and put their hard earned down suddenly found themselves almost in some cases bullied or discriminated against because franchisors simply played hardball with them and their money. And the other point also is that just only yesterday the Australian Bureau of Statistics put out new numbers on the Counts of Australian Businesses. Now this is important because at June 30 last year, there were 2,079,666 actively trading businesses in Australia but that was down by 61,614 from the previous year. In other words, 2.9 per cent fewer businesses in Australia. That’s not good. You want more businesses because more businesses will employ more people and if they make money, they will pay taxes to the government. Now there were still, during 2009-10 according to the Australian Bureau of Statistics, 342,750 new businesses created in that year. Now of those, 73 per cent were still operating a year later. 57 per cent were operating two years later. And just under half were operating in June 2013. The question is whether that strike rate is good enough. It does show that still, even today, business can be fraught. One of the ways in which people go into business is though franchises. And as we’ve indicated we think sometimes, the franchise system has not been fair…for the franchisor. The bigger company which naturally will have more money and therefore more power to take on legal challenges. So what is the Small Business Minister going to do about it? Bruce Billson is on the line right now. Many thanks for your time again Bruce.
BRUCE BILLSON:
Great to talk to you and your listeners Ross.
ROSS GREENWOOD:
Alright, so what have you done? You’re proposing some changes to that franchising code of conduct are you?
BRUCE BILLSON:
Yes we are. I mean the code was originally introduced back in 1998 and much has happened since then. It was designed to regulate the behaviour in a sector which has many advantages Ross, I mean it’s basically a chance to operate your own business but not on your own completely in that you’ve got a franchise system that can bring its business systems, development, its market intelligence, its knowhow into that enterprise that you’re seeking to establish. But it also has some really peculiar relationships where you enter into a franchise and it’s a very adult-to-adult relationship between the franchisor and franchisee but if things get a bit rocky it can flip to parent-child very quickly and the franchisee can find themselves you know really heavily dependent on the decision making of the franchise system itself.
ROSS GREENWOOD:
Are you going to get into this so-called fairness test that many of those people have been advocating?
BRUCE BILLSON:
Yeah what we’ve announced is to include an obligation on both parties to act in good faith towards each other, that’s particularly important. I mean where the power is quite imbalanced as you described, the chance for the bigger party to throw its weight around and maybe not have a genuine interest or even in some rare cases, act maliciously towards the franchisee, that can be very damaging and can…burn up an awful lot of capital, a lot of hope and people mortgaging their houses deserve a fair go so that good faith and fair dealings is an important part of it. Also some penalties Ross. The code has been around for a while but some of the critics of it have said it’s a bit toothless because it didn’t have penalties attached to breaches. You needed to have a really escalated set of grievances to get into the broader competition law. We’re remedying that with let’s call it infringement notices of up to several thousand dollars and then court directed penalties, pecuniary penalties of over $50,000 depending on the nature of the breach, some audit powers for the ACCC so if someone has flogged you a franchise and told you spectacular revenue forecasts and remarkable profitability and it turns out not to be true there’s a chance to go and audit the basis on which those claims have been made. Other things like transparency and the way marketing funds are used, simplification of some of the disclosure documents and even modern day issues such as online sales. If you or I bought a franchise business Ross, and we thought we had a geographic area available to us for a certain period of time only to find the franchise system has gone berserk on online sales cutting into our market and we’re getting no share of that, that’s something that needs to be canvassed upfront.
ROSS GREENWOOD:
What about the other one also that sometimes crops up and it’s certainly been something we’ve seen where say for example you’ve built a business via a franchise over a period of 20 or 25 years and there’s clearly good will, now clearly there are contracts which are negotiated with the franchisor over that period of time, a contract period ends, and the classic case of this was Jack Cowin and building up the KFC brand throughout parts of Australia only to have it effectively ripped off him and he’s had to go to court in massive legal battles there. What happens in that situation? Will that be picked up by this change in the code that you’ve got?
BRUCE BILLSON:
Yeah what we’ve said is beyond the upfront disclosure about on what terms and then what is the process about the decision making as to whether a franchise agreement will be renewed or extended, we’ve said if a franchisor can’t have it both ways, they can’t reserve the right not to renew the contract and the franchise agreement but then insist the franchisee can’t trade in that space. So we’ve said it’s either one or the other. If you want to restrict the trade of a franchisee for whom you don’t want to renew your contract but then you’re saying to them you can’t keep operating in this business or this sector, we’re saying that’s a bit rich unless you’ve bought, you’ve paid for that restriction of trade so there needs to be compensation. Otherwise when the franchise agreement is over and if it’s not renewed then the franchisee with a good customer base, knowledge of the industry, some good will that they’ve built up, they should be able to open and then contest that space once again as an independent enterprise. We’ve said pick one or the other. Either don’t restrict trade post the franchise agreement period or have consideration, have compensation on the table if the franchise system wants to constrain a franchisee in that way.
ROSS GREENWOOD:
So Bruce have you got a snowball’s chance in hell of getting this through both houses of Parliament? Are you having trouble getting any other form of legislation through?
BRUCE BILLSON:
Look I can’t imagine anyone would be against this. It’s frankly a no-brainer in that the previous Government was aware of many of these concerns. We lobbied hard and pressured for some action. They said no, no, we don’t want to rock the boat. We know the relationships are challenging. Finally, just before the election there was an important review carried out, the Wein Review, but it was so late in the piece there was no opportunity to action it. We’re fair dinkum about this. I’m optimistic there’s goodwill in the Parliament and above all, you know franchising is a $130 billion contributor to our national economy. More than 73,000 individual businesses, nearly 1200 franchise systems and 400,000 people employed in it. Why wouldn’t we want to make it stronger? Why wouldn’t we make it more attractive? That’s why I’m optimistic we’ll get support to implement these timely and important changes.
ROSS GREENWOOD:
Minister for Small Business Bruce Billson there. And as you know we have campaigned vigorously on this program for changes to that franchising code because we’ve always felt that it has been tipped badly in the balance of the franchisor. In fact many of those people in the so-called Franchise Council, who are supposed to represent those people - you know the battlers who go out there with their hard earned or their retirement savings to buy. That Franchise Council has been dominated by franchisors and frankly, by too many lawyers and so this change is certainly overdue and very welcomed. Bruce Billson we appreciate your time.
BRUCE BILLSON:
Thanks Ross. And thanks for your ongoing interest for those enterprising Australians that grow jobs and opportunity in our country.
ROSS GREENWOOD:
Yeah thanks.