The Franchising Task Force Regulatory Impact Statement:
- "moving the deckchairs" with streamlining processes
- binding arbitration too difficult to consider because of "complex legal considerations"
- likely "voluntary" amendments to franchising agreements
First impressions matter. Reading the recently released Franchising sector reforms Regulation Impact Statement produced by the Franchising Taskforce made me think about an internet video I recently watched of a French chef (long time resident in the USA) demonstrating how to make a “French style” omelette. Now in his eighties, he was a picture of relaxed concentration and unstudied erudition. Carefully breaking the eggs with a deftness that belied the violence of the action, he carefully separated the whites from the yolks and alternatively beat and folded and expertly manipulated the frypan to produce an omelette creation, light but firm, moist but cooked.
The best way for me to describe my reaction to the muddle of policy options put forward for the dispute resolution section (Principle 5) in the recently released Regulation Impact Statement concerning the need for a “fair, timely and cost effective” resolution process, was like watching a 5-year old make the same omelette. Everything is put into the bowl together, and at the same time; the eggs, yolks and whites, and the shells, smashed and all stirred up together and presented as a carefully crafted dish; short on flair and short on flavour. In the same way the Taskforce’s short review of the most significant of all of the recommendations (occupying only 3 pages of a 48 page report) was short on analysis, short on information and short on ideas.
The reviewers certainly got the problem right: Problem 5.1: Some disputes are not being resolved in a fair, timely and cost effective manner, to which they proposed six “options”. Let’s look at them.
1. Status Quo (Do nothing). It is hardly credible that after a year-long review and the anguished stories of hard working franchisees crushed by a franchise system that set them up to fail, being constantly repeated in the Committee hearings and reported in the press, that this could be an option that could even be considered. To use the omelette analogy again, the “do nothing” option is like presenting the stirred up eggs on the plate uncooked, and about as palatable.
2. Merge OFMA and ASBFEO. Or maybe Option 1 is deftly set up to make Option 2 look like this will actually improve anything. It is glowingly described as “expand[ing] options for dispute resolution, and streamlin[ing] mediation procedures and services”, not to mention “requiring that mediation and then arbitration commence within a specified time period once a mediator or arbitrator has been appointed”. That is, if an arbitrator is ever appointed. And all of this to be funded by an industry levy.
What did the Committee actually have to say about this in its 369 page report, Fairness in Franchising. Very little, actually. They wrote:
“While the committee notes the evidence it received that proposed OFMA be merged into ASBFEO, the committee does not have a firm view on what the best outcome would be.”
However, an independent expert report commissioned by Treasury (in June 2017) recommended against the amalgamation on the basis that combining the dispute resolution referral services of the ASBFEO and the OFMA would require both legislative change and a fundamental change in the ASBFEO’s role. As for the levy, not only is there no justification advanced of the need for it, the only place the word levy appears is in the recommendation itself, as it was never discussed by the Committee.
Make no mistake, this is actually the “moving the deck chairs on the Titanic” option. Creating the appearance of useful activity that has little chance of addressing the real problems identified in the Committee report that are preventing the delivery of fair, timely and cost effective dispute resolution.
3. Pathways for binding dispute resolution. What is this about? The Taskforce explains, “Under this option, dispute resolution options could be expanded by explicitly providing for arbitration in the Franchising Code.” Yes, that is what, based on all the evidence before it, the Committee recommended. It stated:
“15.67 In terms of how the dispute resolution scheme for franchising could be enhanced, the overwhelming bulk of the evidence from a range of stakeholders strongly argued the Franchising Code be amended to include provision for binding arbitration. In this regard, the committee notes that more modern dispute resolution schemes under the Food and Grocery Code of Conduct and the AFCA both provide for binding arbitration.”
“15.73 The committee recommends that the dispute resolution scheme under the Franchising Code of Conduct remain mandatory and be enhanced to include: the option of binding arbitration with the capacity to award remedies, compensation, interest and costs, if mediation is unsuccessful (does not exclude court action);”
And what does this group of senior officers from the Department of Employment, Skills, Small and Family Business, the Department of the Treasury and the Department of the Prime Minister and Cabinet have to say in regard to the very task that was set for them “to examine the feasibility and implementation of a number of the committee’s recommendations”?
“The Taskforce notes that this recommendation involves complex legal considerations, which may limit, or even prevent, the ability of the Commonwealth to compel parties to participate in arbitration.”
That’s it! One sentence.
What are these complex legal considerations? Yes they involve the separation of powers under the Australian Constitution, but where is the rumoured Attorney-General’s advice and where is the discussion about the options available to introduce binding arbitration to improve the operation and effectiveness of the franchising sector? Sadly, it is lacking.
4. Clarify the availability of multi-party mediation. The Taskforce explains that this “may also involve amending the Franchising Code to clarify the existing policy intent that multi-party mediation be available to resolve disputes.” This hardly needs any discussion nor hesitation to immediately implement. The ACCC proposed and strongly supported it, the ASBFEO seconded it and I, as the then OFMA, explained that I had been doing it and the Senate Committee recommended it. However, I would say that recommending it and running it are two different matters. Most mediators would never have had any experience in conducting 20 or 50 party mediations and many cannot.
5. Require that mediation and then arbitration commence within a specified time. This also needs little discussion and immediate support. But it is Housekeeping. More important is to define “how” binding arbitration is going to be delivered than dwell on when it is to start.
6. Require dispute resolution processes be included in franchise agreements. Here we see what appears to be shaping up as the “solution” to be proffered to the franchising industry:
“voluntary binding arbitration, a potentially lower cost dispute resolution option than the courts or drive its uptake where it already exists. This could also ensure that disputes are handled in a timely manner, by specifying timeframes.”
A “voluntary system” of resolution to be included in franchise agreements and enforced by regulation. Its appearance is not surprising as this is the same process recommended for the Dairy Code which was introduced in draft form only 2 weeks ago and which the Department of Agriculture has promised to have in legislation by the beginning of next year. I have described it in a review, as: “the arbitration system you have when you don’t have arbitration” and about as useful.
It must be clear by now, even to the least informed observer, that very little will come out of this Taskforce that will improve the opportunity of franchisees who have been duded, who have lost hundreds of thousands of dollars and whose very economic survival has been threatened by franchisors with far greater economic power, to gain redress through a fair, timely and cost effective dispute resolution system. Unfortunately, that is the very task the Franchising Committee set itself.
by Derek M. Minus the former Franchising Mediation Adviser appointed by the Federal Government.