201411.18

Transcript – Interview with Leon Byner, FIVEaa, Adelaide

E&OE………………………………………………

Subjects: Franchising Code of Conduct

LEON BYNER:

Federal Minister for Small Business Bruce Billson. Bruce, thanks for joining us today.

MINISTER BILLSON:

Good morning to you Leon and your listeners on this hot day in Adelaide.

LEON BYNER:

Absolutely. Can you give us an idea of some of the treatment of franchisees that forced you into a position to get some better laws protecting everybody?

MINISTER BILLSON:

It has been something that I have been focused on for a number of years in Opposition and with the change of Government have the opportunity to do something about it and that is exactly what we have done. Your callers and the people that have been corresponding with you give some examples. Others talk about fiction in the financial numbers that led people to make the purchase in the first place, even basic breakdown of the relationship because franchising, as you have mentioned in your introduction Leon, can be a great way of going into business.

You are in your own business but you are not on your own. You can benefit from the learnings, the marketing, the business development experiences of others and then have a go yourself and then have a go yourself and it starts off, usually very positively, a lot of adult-to-adult shared purpose, mutual interest, we are all in this together, but too often when things do not turn out the way people hoped or when grievances arise, that adult-to-adult relationship can turn to parent-child very quickly and the franchisee finds themselves in a very poor position with little power and that is why we needed to reform.

LEON BYNER:

I know of a case not long ago where a very clever guy who bought into a franchise was promised by those who sold to him that they would not put another of their franchises within two kilometres of his business. Three months later, one turns up, he rings them and they say well that is bad luck.

MINISTER BILLSON:

That kind of behaviour under the code that we have introduced, that takes effect from Monday, would present some real problems for the franchisor. Essential to this relationship, we believe, is a statutory obligation, a duty on both the franchisor and franchisee to act in good faith in their dealings with each other. If people sell you a pub and then go off and do something completely different, that is completely at odds with the kind of mutual respect and good faith and fair dealings that we are looking for.

LEON BYNER:

Surely that would all have been covered already in the law? Misrepresenting the numbers on a business, that is serious stuff.

MINISTER BILLSON:

I think you and I may have talked about this before a couple of years ago.

LEON BYNER:

Yes.

MINISTER BILLSON:

In the old code, it was very much based on disclosure, that is, put all information on the table and let people make informed decisions. What was lacking was what happened if those numbers were fictitious or there were other influences at play that meant people put their hard earned money into buying a franchise unit on certain representations to find that it was not anything at all of the kind that they thought they were purchasing.

The old code Leon did not have any tools. It was lacking teeth and this is what has changed now. There are penalties available, fines if you will that the ACCC can implement – they can be at the ACCC’s own instigation, up to $8,500. To a court, above $50,000 and then if it is very serious and let us say unconscionable conduct, then the matter can kick into the broader competition laws where the sanctions and remedies are even stiffer.

LEON BYNER:

One of the things that happens, when you buy into a franchise, they run the marketing of the budget, they want to make sure that all of their franchises are pretty much the same, the standards are consistent everywhere. That is not unreasonable, and often, that is the real attraction to get customers, but of course sometimes you do not get a lot of transparency into how the marketing funds you are paying for are used and administered.

MINISTER BILLSON:

That is another change that is taking effect from the 1st of January. We heard case after case where people were kicking in their marketing funds not knowing how that money was being deployed and then in some cases where there was a dispute between the franchise system and the franchisee, some of that marketing money was being used to fund the legal action against the very people that were providing that money. We have said that is ridiculous. There is a prohibition on using marketing funds for things other than marketing and there is a need to maintain separate financial accounts so that the franchisees can see what money is going in, what money is going out and also, if the franchise system has some of its own units or stores in the business. They need the kick in as well.

LEON BYNER:

Two very obvious questions, if you have currently got a franchise and you have some issues, who should you talk to?

MINISTER BILLSON:

The best thing to do is talk to the franchise system first. If that is not going to bring about a change in attitude or a quick resolution, then you can go to the ACCC. You can activate the mediation processes. These avenues of redress are clearly outlined in the new franchising code and it is designed to make sure that if a problem arises, it is dealt with quickly with the right tools so that people can get back to business and get on with their business.

Franchising Leon, we are the franchise capital of the world. 460,000 people have a job in the franchise system, 80,000 business units, turnover of $144 billion a year – so important to get this right and I think we have levelled the playing field and have a sure footed regulatory arrangement.

LEON BYNER:

What is your warning to people, if they are interested in buying into a franchise, what should they do?

MINISTER BILLSON:

Do their homework. My benchmark – if you are going to spend a thousand dollars, or more, for every thousand dollars you spend, spend an hour working out whether this is for you. It is also part of the changes Leon that long before you get what can be quite complicated financial and legal and leasing documents relating to the franchise, that you get early advice and a simple disclosure that says – hang on, this is a business. Not all businesses are going to be successful. Know what you are getting into and that is designed when people are even thinking about entering a franchise relationship, to have a reality check about what it is about.

Franchising can be a great way to build wealth and opportunity and livelihoods but it is not without its risks and we are highlighting that long before there is an emotional commitment to make that investment, even with all the material in front. You and I Leon, I have had my own business. Sometimes emotion and ambition can get ahead of good cold hearted analysis. We are trying to make sure that decision process works for everybody.

LEON BYNER:

Thanks Bruce Billson.