Unethical franchisors have led franchising to the point where it may no longer be a viable business model, says the AAF.
The AAF is the Australian Association of Franchisees, the successor to the Franchisee Federation of Australia (FFA). It says it intends to be the “strong voice fighting solely for franchisees”.
It’s calling for new legal foundations to underpin the industry for the sake of the ethical franchisors and all franchisees.
For the past eight months, the Parliamentary Joint Committee on Corporations and Financial Services (PJC) has been holding an inquiry. Its title is ‘The Operation Effectiveness of the Franchise Code of Conduct’.
The AAF says hundreds of submissions and dozens of witnesses have testified that their businesses were destroyed by a massive power imbalance created by franchisors exploiting legal loopholes.
“Franchising, as a business model, is on life support,” AAF President Matt Wheatley said. “It needs urgent changes for there to be any chance of survival.
“The AAF is calling on the PJC to make recommendations that will modernise franchising regulation and provide the balanced obligations and shared responsibilities that business partnerships require to flourish.”
Fixing the ‘power imbalance’
The FFA made a submission to the PJC, outlining its recommendations on redressing the “power imbalance” in franchising. The AAF suggests the Code has incorrect foundations and that franchising is not transactional. This puts it under the Competition and Consumer Act, the AAF claims.
“Franchising is clearly a form of capitalisation,” Mr Wheatley said. “That is, a business decides that, to enable it to grow – rather than raising equity or debt – it will expand by having others invest capital and effort.
“That, by any definition is a form of investment. It should enjoy the same rights, obligations and protections as equity or debt capitalisation.
“If the PJC is to go close to correcting the massive and unjust power imbalance, it must reconsider the foundations on which the industry is built. If we don’t fix this now, we’ll be back in this very same place again and again.”