2
The review results from concerns arising from high profile cases late last year and early this year of franchise failures and losses suffered by members of the public as a result (e.g. Greenacres).
3
The discussion paper:
a Considers whether the current laws provide sufficient protection or should new laws be brought in regulate franchising,
b Recognises that the term “franchising” covers a range of business relationships but the paper chooses to concentrate purely on business format franchising (where the franchisee has the right to use a brand and business system), and that franchise relationships tend to be long term, collaborative and interdependent but unequal in nature.
c That franchise relationships tend to be long term, collaborative and interdependent but unequal in nature.
The paper notes that there is no franchise legislation in New Zealand where regulation instead relies on more general business laws such as the Fair Trading Act. This is contrary to the position in trading partners such as Australia, the United States and Canada but not so in the United Kingdom.
4
The discussion paper further notes the success of the self regulation model used by the Franchise Association of New Zealand and recognises a need for due diligence on the part of a franchisee before becoming committed. The need for prompt and cost effective dispute resolution processes are recognised as being important together with some possible review of an imbalance of contractual power between franchisors and franchisees and the commercial risks franchisees are thereby exposed to.
5
Options proposed under the discussion paper are:
a A continuation of the status quo;
b A targeted education program for the franchise sector; or
c Franchise specific legislation along the lines of the Franchise Association New Zealand Code of Practice and the Australian Franchising Code of Conduct requiring:
i mandatory minimum information disclosure pre-contract (franchisor and business history, financial and key terms);
ii franchisees to be recommended to obtain and be given the opportunity to seek independent professional advice;
iii a cooling off period for the franchisee after signing the agreement;
iv possible mandatory mediation requirements;
v an obligation of good faith behaviour
6
If legislation proceeds as per the discussion paper proposal franchisors will need to invest significantly in improved systems and documentation. Compliance costs will be an issue for franchisors.
7
The closing date for submissions on the paper is 21 November 2008