Better oversight needed of franchising industry

Federal government figures show Australia’s franchising sector employs about 520,000 people and contributes more than $135 billion to the economy each year.

But a litany of allegations against franchisors suggests better oversight is needed of the large industry, despite recent attempts by the federal government to better enforce standards.

As Jessica Yun writes in today’s Sun-Herald, franchisees at bubble tea giant Chatime say they are “trapped” and “traumatised” by the Taiwan-owned franchisor’s tactics, as they lose tens of thousands of dollars on their businesses.

Among their allegations are claims franchisees are signed up to unrealistic sales targets which they must personally cover if not met, charged for failing to attend company meetings or conferences, face additional training charges if they fall behind on sales and that the company continues to deduct royalties from unprofitable franchisees.

These practices are not illegal. But, as Legalite managing principal Marianne Marchesi says in today’s story, they are not ethical, or considered best practice.

It is not the first time Chatime has made headlines in this masthead for the wrong reasons. A 2019 investigation found underpayments of staff extending back to 2009 and the Federal Circuit and Family Court fined the chain and managing director Chen “Charlley” Zhao in November 2024 for underpaying more than 150 employees, many vulnerable junior workers and international students.

It is not the first time that the country’s franchising sector has been criticised for predatory practices towards its franchisees.

A 2017 investigation by this masthead into Retail Food Group, the owner of supermarket food court favourites such as Gloria Jeans, Donut King and Crust Pizza, found franchisees were being financially squeezed by fees and contracts that forced them to buy marked-up stock.

Those revelations led to an exodus of franchisees and a parliamentary inquiry on the effectiveness of Australia’s Franchising Code of Conduct. A federal government response to that inquiry, issued in 2020, promised a range of initiatives, including doubling penalties for breaching the code, increasing financial disclosure requirements for franchisors and prohibiting franchisors from unilaterally imposing significant capital expenditure on franchisees during their agreement.

Earlier this year, the Albanese government unveiled reforms designed to increase the protections offered by, and strengthen the enforcement of, the code.

A key reform is the requirement that franchisors give franchisees a reasonable opportunity to make a return on their investment. But, franchise agreements entered into, transferred, renewed or extended before April 1 of this year do not need to be updated to comply with the changes.

The history of concerning practices by large franchisors operating in Australia suggests a stronger approach is needed to regulate franchising.

Franchisees in Australia are being placed in vulnerable positions: committing tens – if not hundreds – of thousands of dollars before they make their first sale, then being bound by unreasonable agreements for revenue and operations.

The Australian Competition & Consumer Commission must turn its gaze to the sector, ensuring its complaints process is accessible so these new reforms can have their greatest impact.

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