1. Regulatory Update 2016 Dr Michael Schaper ACCC Deputy Chair
National Franchise Convention, Canberra
Sunday 9th October 2016

2. Other Legal Developments
Outline
The ACCC: What We Do
Codes of Conduct
Industry Contact
Unfair Contract Terms
Other Legal Developments

3. 1. The ACCC: Our Role
National regulator: oversees laws on consumer protection, equitable competition, product safety, infrastructure access
Also regulates some specific industries (such as energy, telecommunications), industry codes (franchising, horticulture) and price monitoring (airports, postage, stevedoring)
An independent statutory agency within the Treasury portfolio
Court-based enforcement of the law
Dual educative and enforcement function
Franchise Info Network includes 2,000+ subscribers & Griffith/ACCC Pre-Entry Course 10,000 participants since 2010
Enforcement agency…does not set policy

4. The Legal Framework Competition & Consumer Act (2010)
General requirements for all trading businesses
Includes the Australian Consumer Law
Common franchising concerns includes misrepresentation about earnings
Competition & Consumer Act (2010)
Mandatory for all participants
Specific requirements for franchise systems
Franchising Code of Conduct (2014)

5. Franchising Code of Conduct
New version of the Franchising Code of Conduct effective since 1 January 2015; mandatory under the Competition & Consumer Act.
Binding on all industry participants, including overseas franchisors that have franchisees or master franchisees in Australia.
Both the Code and the Act provide a range of protections for current and prospective franchisees in their dealings with franchisors.
Around 1,160 franchise systems and 79,000 franchise units trading in Australia. Awaiting latest Griffith survey results.
Infringement notices of $9,000 and court penalties of up to $54,000 apply for serious breaches of the Code.
Source:

6. 2. Small Business Compliance & Enforcement Priorities in 2016
Priority area: Industry codes of conduct, including the Franchising Code, the Food and Grocery Code and the revised Horticulture Code
Priority area: New legislative provisions extending unfair contract term protections to small businesses
Decision factor: We prioritise enforcement action against larger companies ahead of smaller businesses
Decision factor: We consider whether a trader has been willing to participate in mediation or dispute resolution

7. Source: http://www. accc. gov

8. A Snapshot of The Past Few Years…
Franchisee Contacts To The ACCC
Age of Firms Contacting The ACCC
2015
2014
2013
2012
Complaint
  724
  530
  602
  670
Enquiry
  299
  235
  197
  149
Total
1,023
  765
  799
  819
Age
Contacts
Under 2 years
97 (37%)
2-3 years
25 (9%)
3-5 years
38 (15%)
5-10 years
61 (23%)
10-15 years
18 (7%)
Over 15 years
21 (8%)
Total
260

9. ACCC Small Business/Franchising Referrals To Other Agencies
Jan – Mar 2016
Apr - Jun 2016
Total small business contacts (complaints + enquiries)
2402
2244
Complaints
1399
1188
Referrals to SB Commissioners
621
418
Small Business & Family Enterprise Ombudsman
168 97
NSW Small Business Commissioner
186
122
Victorian Small Business Commissioner
170
116
South Australia Small Business Commissioner 48 35
Western Australia Small Business Commissioner 49

10. Audits
The ACCC can compel a trader to provide any information or documents it is required to keep, generate or publish under the Code
We have served notices to produce documents on 104 franchisors since 2011; about per year
Recent audits focused on compliance with marketing fund obligations. We will be conducting further audits before the end of the year

11. Exclusive Dealing
Exclusive dealing involves one trader (franchisor) imposing restrictions on another's (franchisees) freedom to choose with whom, or in what, or where they deal.
There is a public ‘notification’ process where franchisors can seek protection from legal action under the Competition and Consumer Act.
In 2015–16, the ACCC assessed 495 exclusive dealing notification matters. Around 66 matters or 13% related to franchising arrangements.

12. ACCC Seeks Penalties Under Franchising Code For The First Time
The ACCC has taken court action against the current Pastacup franchisor, Morild Pty Ltd, and its former director Stuart Bernstein
The ACCC alleges Morild breached the Franchising Code by failing to disclose to prospective franchisees the relevant business experience of Mr Bernstein
Mr Bernstein was a director and managed two previous franchisors of the Pastacup franchise. Both of these franchisors became insolvent.
The ACCC alleges this was not disclosed in disclosure documents.

13. Small Business & Franchising Consultative Committee
ACCC Franchising Committee recently merged with Small Business Committee
Small business and franchising issues often overlap
Committee now includes 20+ members with a range of backgrounds
Strong franchising representation on the Committee; about ⅓ of members

14. 4. Unfair Contract Term Laws
Unfair contract terms
Protect both consumers and small businesses from unfair terms where they have little or no opportunity to negotiate
New law applies to standard form small business contracts entered into or renewed from 12 November 2016
Some industries of focus: advertising, telcos, franchising, retail leases
Applies to standard form contracts. Upfront price up to $300,000 ($1 million for contracts more than 12 months)
One of the parties to contract has less than 20 employees

15. Why Do Small Businesses Need Protection?
On average small businesses were offered about 8 standard form contracts in the past 12 months
Small businesses less likely to thoroughly review the contract…too complicated and they lack legal expertise
30% of small businesses spend less than 9 minutes reviewing standard form contracts
60% of small businesses claimed to have experienced unfairness in terms and conditions
44% of small businesses reported experiencing some harm as a result of the unfair terms
Source: The Commonwealth Treasury, on behalf of CAANZ, undertook a survey from 23 May 2014 to 1 August 2014 on business contracting practices and unfair contract terms.

16. What’s An Unfair Contract Term?
Standard form contracts cannot contain terms that:
cause a significant imbalance
are not reasonably necessary to protect the business’s interests, and
cause any detriment to the consumer or small business
A court or tribunal looks at transparency and the contract as a whole before deeming a term unfair.
Unfair term is void (treated as though it never existed), however the rest of contract will continue to bind.
Terms that set out the price are not covered by the UCT law.
Source: IPA National Congress

17. Small Business Scenarios
Contract for internet services
Under a term of the contract, the internet service provider has the right to change its prices or services at any time without prior notice to the small business.
The small business does not have the right to end the contract, even if the internet service provider increases the price significantly.
Franchise agreement
The franchise agreement contains a term allowing the franchisor to terminate the agreement at any time without cause (i.e. even if the franchisee hasn't breached the agreement).
The agreement also states that if the agreement is terminated, the franchisee will not receive any compensation.
Terms that may raise concern
Right to unilaterally vary the contract
Automatic rollover
Limited liability
Restraint of trade
Liquidated damages
Wide indemnity

18. UCT and Franchise Systems
Problematic areas
Right to unilaterally vary agreement or operations manual
Broad restraints of trade
Liquidated damages for franchisee breaches
Examination of termination clauses has shown some surprising examples
i.e Terminate if franchisee breaches four times
i.e Terminate if franchisee’s store manager incapacitated
i.e Terminate without cause
Pricing usually not a problem

19. Employment Issues & Franchising Regulation
Recommendations have been put forward suggesting changes to employment law and the Code
Government considering new offence provisions that capture franchisors and parent companies who fail to deal with exploitation by their franchisees – no details yet
ACCC continues to liaise regularly with Fair Work Ombudsman. FWO is responsible for employment law breaches

20. Complaints from Small Business
COMING SOON
The ACCC will publish the top complaints made by small businesses to raise awareness about harmful conduct and reduce money lost to errant traders
As part of a pilot program for 12 months, the quarterly online list will outline key issues faced by small businesses as they are described to us.
If traders are named on the list, it doesn’t mean the ACCC is investigating them and it doesn’t mean they’ve broken the law

21. 5. Other Legal Developments Looking Forward
Proposed changes to Competition and Consumer Act – misuse of market power & concerted practices
Australian Consumer Law Review: examining product safety, consumer guarantees and other changes
Other mandatory industry codes: Horticulture (under review), Food & Grocery (now 1 year old), Oilcode (under review)…
Enforcing codes of conduct will continue to be a priority in 2017

22. ACCC Franchising Contacts & Online Training
Small business helpline
Franchising Info Network
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