Have franchisors killed franchising? According to Matt Wheatley, President of the newly formed Australian Association of Franchisees (AAF), unethical franchisors have led the franchising industry to the point it may no longer be a viable business model.

Over the past eight months, the Parliamentary Joint Committee on Corporations and Financial Services (PJC) has put a spotlight on franchise businesses with its inquiry into ‘The Operation and Effectiveness of the Franchise Code of Conduct’.

Wheatley told WILLIAMS MEDIA that the power imbalance created by franchisors exploiting legal loopholes was among the most urgent issues currently facing franchisees.

“Franchising, as a business model, is on life support and needs urgent changes for there to be any chance of survival,” said Wheatley. 

“The AAF believes the most urgent issue is the absurd power imbalance between franchisors and franchisees,” he told WILLIAMS MEDIA. “The Parliamentary Inquiry into franchising has heard from hundreds of franchisees whose businesses and lives were ruined because the Franchising Code allows this power imbalance and exploitation of franchisees.”

Providing a voice for franchisees

The Australian Association of Franchisees is the successor to the Franchisee Federation of Australia (FFA) and intends to be the strong voice fighting solely for franchisees. 

“We are working hard to ensure the Federal Government address the shortcomings of franchising regulation and grassroots support will assist with this. As we grow we will be offering franchisees assistance with their businesses, legal and staffing issues as well as lending our muscle to disputes with franchisors,” Wheatley told WILLIAMS MEDIA.

“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.”

There is universal agreement that franchising is a vital part of the economy, employing nearly half a million Australians. There is also agreement that the vast majority of franchising systems are good businesses that work well for both franchisor and franchisee. However, Wheatley notes, without checks and balances in the Code of Conduct, any one of these franchises could be a pen stroke away from joining the ranks of those businesses the Parliamentary Inquiry has heard from in past weeks.

“While we recognise there are many more good franchisors than bad, the bad have to go and the way to do that is to correct the power imbalance so the unethical franchisors cannot take advantage of their franchisees,” Wheatley told WILLIAMS MEDIA. 

“The best way for this to happen is for franchisees to join us so we all speak as one. We know that some franchisees are scared to get involved because they are frightened of retribution by their franchisor but we will protect the identity of our members should they wish and, besides, this is exactly the kind of behaviour we are trying to stamp out.”

Start with the foundations

The FFA’s submission to the PJC outlined its recommendations on redressing the power imbalance in franchising, which included a call for legal recognition of franchisees as investors and the introduction of protections similar to other investment schemes. 

“Franchising is clearly a form of capitalisation, that is, a business decides that in order to enable it to grow that, rather than raising equity or debt, it will expand by having others invest capital and effort,” said Wheatley. “That by any definition is a form of investment that should be afforded 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 then it must reconsider the foundations on which the industry is built, concluded Wheatley.  “If we don’t fix this now, we will be back in this very same place again and again.”

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