GOVERNMENT CHANGES TO FRANCHISING CODE PENALTIES ‘WEAK’

The Federal Government has doubled the penalties that apply for a breach of the Franchising Code, but AADA believes this response is still ‘far too weak’ to change anything.

AADA Chief Operating Officer Brian Savage said “the penalties are still inconsequential and provide no deterrent to unfair behaviour by large offshore auto Manufacturers”.

“Dealers will always be the junior partner in their relations with Manufacturers and they do not seek to prevent Manufacturers from arranging their retail operations as they see fit. All we call for, is that Dealers be treated fairly when they make these changes and to be paid the compensation for the time, effort and capital they have poured into these businesses,” Mr Savage said.

The Government also strengthened dispute resolution options, among a raft of responses to the Fairness in Franchising Report conducted by the Parliamentary Joint Committee in March 2019.

The Government’s key actions in response to the Fairness in Franchising Report include:

  • doubling the penalties that apply for a breach of the Franchising Code
  • strengthening dispute resolution options through the introduction of conciliation and voluntary binding arbitration, in addition to mediation
  • targeted improvements to disclosure, particularly those relating to supply arrangements, marketing funds, exit arrangements and significant capital expenditure
  • a new mandatory Key Disclosure Information Fact Sheet to improve and simplify upfront disclosure, highlight key information, and assist franchisees to understand obligations and the risks associated with entering a particular franchise agreement
  • consultation on the development of a public register of franchisors, to increase transparency in the sector and increase the ability of prospective franchisees to make an informed decision before entering a franchise agreement, and
  • a franchising website to make it easier for franchisors and franchisees, including prospective franchisors and franchisees, to access information and support.

Mr Savage called for “three key elements” to make the Franchising Code fair for Dealers:

  • Better dispute resolution process. “The Government’s response has committed to a process of voluntary binding arbitration. This is simply enshrining the process that occurred with GM in which you asked them to participate in arbitration. As was the case with GM Manufacturers will simply refuse if it is not in their interest. We understand that constitutional issues have been raised on this issue, but we would like to explore other ways of developing a more effective dispute resolution process under the Code,” Mr Savage said.
  • Require Manufacturers to fairly compensate Dealers when they are terminated, agreements are not renewed or distribution models are changed. “Since the Holden Dealers were terminated, clauses have appeared in agreements stating that Dealers have no right to compensation even in the event of termination for no cause,” Mr Savage said.
  • Contract terms that grant Dealers enough time to recoup their investment. his was an option under the Regulatory Impact Statement but did not transfer to the final Government response. “It is crucial for Dealers who are often investing large sums of money at the request of Manufacturers,” Mr Savage said.

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