Legislation introduced into the South Australian Parliament could have a significant impact on the way franchisors conduct business in that state.  The legislation will affect both Australian and international franchise operators in South Australia. Industry bodies have already expressed concern about the potential reach of the legislation.

The Minister for Small Business, Tom Koutsantonis stated in a news release that 'for far too long small businesses, franchisees and tenants have felt powerless when dealing with unfair practices of franchisors, larger businesses or large scale landlords... this legislation will give them a voice, a champion to help them through tough times, disputes and compliance issues'.

The Small Business Commissioner Bill 2011 (SA) still needs to pass through Parliament in order to become law.  The Bill will not be debated until the next sitting day, which is 13 September.

The Small Business Commissioner

The legislation will establish a new office of the Small Business Commissoner.

One of the key functions of the Small Business Commissioner is to receive and investigate complaints by small businesses regarding their commercial dealings with other businesses, and to provide a dispute resolution service.

The Bill is intended to take into account lessons learned from the model provided by the Victorian Small Business Commissioner, which has demonstrated its ability to resolve a high proportion of disputes through mediation.  Since its establishment in 2003, the Victorian Small Business Commissioner has reportedly been involved in more than 8,000 matters.

Other functions of the Small Business Commissioner include:

  • monitoring, investigating and advising the Minister about non-compliance with industry codes, including the Franchising Code of Conduct, that may adversely affect small businesses
  • assisting small businesses in their dealings with state and local government bodies
  • disseminating information to small businesses, to assist them in making decisions relevant to their commercial dealings with other businesses and their dealings with state and local government bodies.

The Bill also provides that the Small Business Commissioner is to perform its functions with a view to developing and maintaining relationships between small businesses and others that are based on dealings conducted fairly and in good faith.  Although the intent of this provision is unclear, it clearly applies to franchise relationships.

How will this affect franchisors and franchisees?

The Australian franchising sector is comprised mainly of small businesses, and one of the Franchising Code of Conduct's governing concepts is mandatory dispute resolution

If the Bill becomes law, small businesses in South Australia will have access to a new dispute resolution process.  Franchisees and franchisors alike should be aware that the Small Business Commissioner will provide a dispute resolution process, which is designed to avoid the high costs of litigation.

However, the other ways in which the Bill may impact the franchising sector in South Australia are uncertain.  In particular, the Bill, if it becomes law, would enable penalties for contravention of an industry code to be prescribed by regulation.  In future the South Australian government could use this power to impose penalties of up to $50,000 for corporations, and up to $10,000 for individuals, who breach of the Franchising Code of Conduct.

The Bill will be watched closely by the franchising industry, and franchisors in particular.

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