The Federal Government has confirmed it intends to press ahead with its plans to extend the definition of "consumer" in proposed new national consumer credit legislation to include businesses. By doing so, and as a result of the provisions dealing with "standard form" contracts, franchise agreements are likely to come under scrutiny. The Minister has rejected calls for a specific exemption for franchise agreements notwithstanding that the Franchising Code of Conduct provides a comprehensive regulatory framework.
The Franchise Council of Australia and other business groups are lobbying against the proposed changes, arguing among other things that such changes will add another layer of uncertainty on the franchise relationship. Deacons prepared the industry submissions for the FCA and continues to assist with lobbying.
Franchise systems should consider preventative action, reviewing their recruitment practices and documentation. Areas of focus should be:-
- Recruitment processes, to ensure there is adequate time for the franchisee to consider the documentation, and for negotiation and discussion
- Training, to ensure recruitment staff do not adopt a "take it or leave it" approach
- Franchise agreements, to ensure that they do not contain provisions greater than reasonably necessary to protect the legitimate interest of the franchisor
- Collateral agreements, to ensure they are not unnecessarily onerous.
Franchise systems who enter into contracts with consumers or small business customers as part of their normal business activities (eg telecommunications companies, car rental companies) should similarly review the contracts to ensure they comply with the proposed new law.
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