Author of South Australian franchisee laws plays down suggestion of legal challenge

Franchise expert Frank Zumbo has rejected suggestions from former Small Business Minister Nick Sherry that the new South Australian franchising laws could prompt a legal challenge, saying opponents ought to keep an open mind.

Sherry, who supports national franchise laws over state-by-state laws, told SmartCompany last week that South Australia’s new state-based franchising laws could be subject to a legal challenge.

Sherry said although the the Commonwealth can’t stop the state passing additional laws and wouldn’t initiate a legal challenge, a dispute in the state could prompt a challenge to the validity of the new laws.

But Frank Zumbo, associate professor in business law at the University of New South Wales, says the prospect of a legal challenge in SA shouldn’t be high on anybody’s worry list. 

“It’s highly speculative at the moment to be talking about what may or may not be challenged,” Zumbo says, adding the rules have been through a “rigorous” parliamentary process and are consistent with federal frameworks.

“Everyone needs to take a cold shower.”

Zumbo adds the appropriate time to comment on them is when the codes are released for consultation next year and says many opponents might find then that their concerns were premature.

But the Franchise Council of Australia disagrees, saying “it’s not pie in the sky” to suggest a challenge might occur.

South Australia passed its laws – to create a Small Business Commissioner, introduce a clause forcing franchising parties to negotiate in good faith, and create penalties for breaches of the franchising code of conduct – in October.

The new laws were slammed by the Franchise Council of Australia as adding another layer of legislation. Labor has ruled out a review of the federal franchising laws until 2013, saying they need more time before they can be properly evaluated. The Australian Competition and Consumer Commission is also a proponent of federal franchising laws.

Meanwhile, a private member’s bill in Western Australia – which also sought to impose financial penalties for breaches of the franchising code and provide a statutory duty of good faith – lost by one vote last month.

Its author Liberal MP Peter Abetz told SmartCompany afterwards that members of parliament from Queensland and New South Wales had told him they planned on bringing similar legislation to their own states, raising the spectre of further state-based franchising laws. 

This prediction was rejected by the FCA this morning, which said they’d been informed by various states they did not intend to follow SA’s lead.

Supporters of state laws say they are necessary to better protect franchisees from unfair contracts and dealings with franchisors.

But Sherry told SmartCompany last week that the “national position has been very, very clear: we believe in one set of rules, laws, supervisory and regulatory requirements in this area.”