Franchise 2019: Trends - Regulatory developments

Australia is well known for its franchise sector, which makes up 9 per cent of the country’s GDP. Not all countries have specific franchise laws, but Australia has its own Franchising Code of Conduct. This year, the Australian Senate instructed the parliamentary joint committee on corporations and financial services, with a report titled “Fairness in Franchising” published in March 2019. This came after several headlines shed light on franchisee exploitation. The committee calls for a better regulatory landscape, and recommends introducing higher penalties for breaching franchising laws and giving more responsibility to the Australian Competition and Consumer Commission. It remains to be seen whether these suggestions will result in changes to the country’s current code.

In December 2018 a Dutch draft bill on franchising was published in the interests of improving franchisor-franchisee relationships. The bill details several matters, including consent to policy changes and disclosure rules. In January 2019 an internet consultation authorised feedback from numerous practitioners working in the franchise space. An amended draft bill is yet to be published. New data laws are being introduced internationally including the California Consumer Privacy Act and the New York Privacy Act. As one interviewee highlighted to us in this year’s research, these laws will “heavily impact on US franchising coming out, and also international franchising coming in”. Another source comments: “Data privacy and security is an increasing issue. New data regulations impact numerous businesses, and this will be massive for us in the coming year.” In April 2019 the US Department of Labor proposed a rule clarifying when multiple entities are liable, as “joint employers”, for violating wage-and-hour laws under the Fair Labor Standards Act. This regulation would be an agreeable development for franchisors, particularly those using temporary workers or subcontractors, since it lowers the risk of them being considered “jointly” liable for the wage violations performed by franchisees or subcontractors.

Several developments, then, are taking place internationally that aim to improve the current situation for franchisors and franchisees, and reduce the franchisor-franchisee power imbalance. Whether or not these regulations come into effect, there certainly seems to be an appetite for reviewing and improving regulation in the sector.