21st August, 2020 ยท bulletin

Government Response to the Fairness in
Franchising Report

2 minutes to read

Minister for Small Business, Michaelia Cash, has written to the AADA advising us of the Government’s response to the Fairness in Franchising Report published in March 2019. She has also requested that we distribute her letter to the AADA members.

In its response, the Government makes it clear that there is an understanding of the importance of the franchising sector and the need to improve “fairness and transparency for franchisees”. The AADA acknowledges that the Government response, along with the addition of the recently released automotive schedule to the Franchising Code, seeks to provide franchisees with greater protections and correct the power imbalance that so unfairly benefits franchisors. However, we are of the firm view that these protections do not go far enough and simply will not have the effect of changing the behaviour of OEMs in Australia.

The bar for proving breaches of the Franchising Code continues to be too high for Dealers in dispute with offshore, multinational corporations. The increased penalties of just over $130,000 for a breach will do little to deter bad behaviour by franchisors, particularly for an automotive Manufacturer. Equally, the response details a dispute resolution process that now includes binding arbitration, however, it is a voluntary process and nothing in it compels the OEMs to participate, which is essentially the status quo. We are also disappointed that the Government did not adopt a recommendation in its earlier regulatory impact statement which would have placed obligations on a franchisor seeking an investment from a franchisee to provide an agreement term of sufficient length to recover that investment.

The recent example of General Motors Holden refusing to respond a call by Minister Cash to enter into arbitration in its dispute with Holden Dealers should be used as a measure of the effectiveness of the key actions announced by the Government in its response. We question whether anything contained in the response would give cause to creating a different outcome than that which occurred in the Holden case. While we are still working to understand the full implications of the Government response, it is unfortunate that appears nothing in it would be sufficient to compel General Motors to respond any differently than it did. All OEMs watched the GM Holden case carefully and the lack of action sets a dangerous precedent.

The AADA will be making representations to Government on our disappointment of these reforms and will continue to push for further protections for our industry through the process being led by the Industry Department.

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