10. Hon LIANNE DALZIEL (Labour—Christchurch East) Link to this
to the Minister of Commerce
What action is the Government taking in light of the reported statement from Auckland University Business School law lecturer Gehan Gunasekara that the franchise sector is a “wild west” and “… franchisees represent around 30 percent of all claims brought under the Fair Trading Act …”?
Hon SIMON POWER
Hon Darren HughesAt least they have worked out who the shadow Leader of the House is. Earlier this month Cabinet received and considered the Review of Franchising Regulation in New Zealand, which was initiated by Lianne Dalziel last year as the previous Minister of Commerce. The review found that there was insufficient evidence of a widespread problem within the franchising sector, and that where there were issues, they were common to small and medium enterprises generally. Many submitters to the review found the status quo adequate, including the Franchise Association of New Zealand. Cabinet agreed with the findings of the review that it was not clear that proposals for regulation would be effective, or result in sufficient benefit to outweigh the additional compliance costs that would be imposed on industry.
The reports that surfaced last year of people being sold non-existent franchises appear to be cases of fraud, which are already being dealt with under current laws by the Serious Fraud Office and the courts. I also note that the 30 percent statistic referred to by the member does not relate to all claims brought under the Fair Trading Act, but rather to the specific complaint of misleading conduct in relation to the sale of a business. I also note that the same research found that 68 percent of all claims for misleading and deceptive conduct brought to the courts were successful, and the overwhelming number were brought by franchisees, indicating that the Fair Trading Act is working for those people.
Hon Lianne Dalziel Link to this
How will the Minister respond to the victims of the next franchise scam, when people lose their jobs, homes, and life-savings, and when he is asked why he failed to act when he had the chance to provide protections that other countries take for granted?
I believe, and the Government believes, that sufficient protections are available at common law, including the generic business laws of contract law, intellectual property law, consumer law, and competition law. I can only repeat the member’s own words from her press release, where she said: “I agree that the case has not been made out for a specific statutory framework for all franchise operations,” and that she personally favours enhanced self-regulation.
Hon Lianne Dalziel Link to this
What specific representation did the Minister receive from the Minister for Ethnic Affairs about offering protection to franchisees, in light of her statement that “The franchise business is also attractive to immigrants who can’t find jobs and are desperate to make a living. They will cling on to what little hope [they have] that claims made by the franchiser are true, even those they find hard to believe.”?
None, specifically, but the review found there was no specific reason to single out franchising when it came to potentially unscrupulous behaviour. If we imposed specific regulations on franchises, it is likely that those compliance costs would have a disproportionate effect on smaller franchises, and pose a potential barrier to entry for migrants or those who have lost their jobs. However, the Government has moved to assist all small businesses to resolve disputes, the member will be pleased to know, by proposing an extension to the threshold for claims to the disputes tribunal in a bill that is currently before the House.
Hon Lianne Dalziel Link to this
Did the Minister see the statement from the commentator I referred to before, Gehan Gunasekara, who stated that the many problems which arise with franchises come down to a lack of understanding of what a franchise really is, “and sadly that is reflected in the government review which blandly states a franchise is no different from any other commercial arrangement, which is not true”; if so, why will he not act to protect those who, we know, will be disadvantaged in the future—particularly new migrants to New Zealand.
I did read the article the member refers to in the Sunday Star-Times, I think, on the weekend. I am confident that the current laws in place in general statutes are sufficient to deal with these particular issues. The difficulty is that if a separate set or new regulatory environment was introduced, the compliance costs could work against those very people who wish to enter into these arrangements by way of jobs or other arrangements. I am surprised by the member’s passion on this issue, when her own press release said that she favoured self-regulation, something which does not seem to be quite consistent with the questions I am getting asked today.
Hon Lianne Dalziel Link to this
I seek leave to table the submission to the Ministry of Economic Development on the Review of Franchising Regulation in New Zealand discussion paper from Gehan Gunasekara, where he states that a compelling case has been made to increase certainty for all parties involved in franchising, and stating that transaction—
Mr SPEAKER