It's time to restore confidence in the franchising industry
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It's time to restore confidence in the franchising industry

You have probably bought something from a franchise outlet in the last 48 hours. It probably looked like a well-branded, established business and its signage is a familiar sight in the communities you drive through.

I hope you enjoyed the product you purchased – but beware of purchasing a franchise-based business.

The investigation into 7-Eleven was one of many scandals that have hit the franchise industry.

The investigation into 7-Eleven was one of many scandals that have hit the franchise industry.Credit:Arsineh Houspian

Everyone knows starting up your own small business is risky. The allure of buying into a well-known franchise-based small business brand, and the belief that support will be offered to ensure your success, has seen franchising become one of Australia’s most popular business models with over 79,000 franchises operating, employing over 470,000 people.

Yet the wage scandal at 7-Eleven revealed an underbelly of exploitation of workers in the franchising sector that took our national breath away. Fair go? What fair go when people are paid only $9 per hour, or bullied by employers demanding they give back to their boss, in cash, half their legal wage.

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But partially paid workers in these sorts of franchise chains are not the only ones getting ripped off. So are their bosses, the franchisees.

Those at the top of the food chain – the franchisors who own the brands, however, are cashed up and powerful.

This week, the Parliamentary Joint Committee on Corporation and Financial Services Report into the Franchising Code of Conduct was released. During the course of the inquiry, the evidence heard in public – and in confidence, when many franchisees were too scared of their franchisor bosses – made clear that far too many franchisors are abusing the power imbalance between themselves and franchisees. The list of complaints documented failure points too numerous to mention in this small piece, ranging from unconscionable contract terms to intimidation, gross exploitation and complete abandonment.

Whilst some franchisors operate in an ethical manner, sadly the franchising industry has come to be defined by the systemic poor conduct and exploitative behaviour of many franchisors – to the detriment of franchisees and their workers.

Wages not paid. Homes lost. Jobs lost. Leases not paid out. Suppliers not paid. Financial destitution. Families broken apart. Experiences of mental ill health and trauma. And sadly, there are even reported suicides. These are just some of the realities for workers and franchisees when franchising goes bad.

The current regulatory environment is just not working.

Senator Deborah O'Neill says a huge overhaul of the franchise industry in Australia is overdue. 

Senator Deborah O'Neill says a huge overhaul of the franchise industry in Australia is overdue. Credit:Anna Kucera

A common model uncovered is such that the rent, royalty, cost and volume of supplied goods, menu prices and brand strategy are fixed. The franchisee is in the complete control of the franchisor.

Wages are just about the only cost that franchisees have full control over incentivising wage theft. The evidence heard was devastating. This is Submission 36:

“They told me to consider underpaying staff that I can trust. The key message was that as migrants, I must be aware of other migrants or students, who would gladly accept underpayments in lure of their ‘first’ job and hence not report or complain. So, if I were able to exploit my employees, I could generate a ‘profit’, otherwise there is no other cost that can be managed enough to reverse this loss-making scenario.”

It was not just wage theft that was costing franchisees. There is also the churn or burn strategy of fleecing franchises of every cent and every asset they and their supporting families owned. When the odds are stacked up against you like that no amount of hard work will keep your business afloat.

The churning of outlets by some franchisors was remarkable – this is the practice of repeatedly putting franchisees into a site that fails.

Franchisors can be incentivised to engage in churning, their reward for repeatedly selling a single site of a failed franchise is just so lucrative. Every time the failed site changes hands and is bought by an unknowing franchisee, the franchisor is rewarded with a start-up fee of around six figures. That’s right, hundreds of thousands of dollars clocked up for the franchisor, while the franchisees lose everything.

There is also burning – this is the practice of continually opening new outlets, some of which are unlikely to be viable, to profit from significant upfront fees. This left many existing franchisees struggling and forced to close shop.

All these issues would not have been known without the bravery and courage of countless franchisees that came forward despite the, at times, bullying and intimidation used to silence them. To these franchisees, I want to say thank you.

It saddens me to say but the franchising system as it stands no longer follows the mantra that many franchisors have been peddling, ‘their success is our success’.

By addressing the inherent power imbalance that exists in franchising and calling for investigations into some of the worst offenders, the unanimous recommendations from this Inquiry – agreed by every single Member and Senator on the Committee – if implemented, will go a long way to ensuring this mantra is finally lived out.

Senator Deborah O’Neill was deputy chair of the franchise inquiry committee

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