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GOVERNMENT DECIDES AGAINST FRANCHISE REGULATION

by Simon Lord,
last updated 23/07/2009

12 June 2009 - The Ministry of Economic Development has today announced that, following last year's Review of Franchising Regulation, the Government has decided that there is no case for franchise-specific regulation at this time.

The Government found that there was insufficient evidence that franchising was unique from other forms of business, or of widespread issues in the sector, to justify the introduction of franchise-specific regulation. It also found that the proposals for regulation were unlikely to result in significant benefits and any benefits would likely be outweighed by the compliance costs of regulation.

The Cabinet paper with the full analysis of the issues and the Government's decisions can be read here on the Ministry of Economic Development's website.

In his conclusion the Minister of Commerce, the Hon Simon Power, comments that:
‘Overall, I do not believe that there is a need for the introduction of franchise-specific regulation at this time. There is little evidence of widespread problems within the sector and it is difficult to argue that franchising is unique enough from other types of businesses or contracts to necessitate specific regulation.'

‘There is also insufficient evidence to indicate that current processes are inadequate to address any issues and it is unclear that regulation would be the answer to any perceived problems. While some see an information imbalance between franchisors and franchisees, others see a lack of understanding among franchisees and a willingness to enter contracts without doing the proper research or due diligence which lead to disputes. It is difficult to legislate to remedy this.'

‘It is also likely that the risks and costs of regulation would outweigh the possible benefits. These include the small size of the sector in New Zealand which would suffer from potential compliance costs and the difficulty in defining ‘franchise'.'

Simon Power is speaking at the symposium on Franchise Law Reform being held later this month.

The Cabinet paper notes that the 33 submissions made on last year's discussion document were split roughly evenly in their support for and against franchise-specific legislation. It comments that some submitters expressed dissatisfaction with Franchise Association of New Zealand and the level of protection it is able to provide; however, it notes that, ‘in its submission FANZ indicated that a review is planned of its Code of Practice and some amendment is expected. The review and any changes may go some way to addressing concerns and show that the sector is taking steps to develop its own solutions.'

Labour Commerce spokesperson Lianne Dalzie, who commissioned the review while Minister last year, has called the Government's decision 'disappointing. 'We should be ensuring that basic protections are in place' to minimise the risk of things going wrong, for those who are not in the best position to protect themselves,'; she said. Read her comments.

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