The industry covers sectors of the economy from food and retail chains and restaurants to financial services providers, video outlets and real estate agents and is seen as an incubator for entrepreneurial talent.
Given the complexities of the bill and the host of unintended negative consequences, Business Unity SA urged that it be sent back to the department for further work.
Consumer Goods Council legal and regulatory affairs manager Nick Tselentis said the bill had caused a great deal of uncertainty in the industry, which was governed by contract between franchisor and franchisee. It would make these contracts subordinate to law.
The council believed it was inappropriate for franchisees to be included in the definition of a consumer as this would make franchisors responsible for all the claims made by consumers in terms of product warranty and strict liability. It would also allow franchisees to do as they pleased without bearing the consequences.
Tselentis said this would encourage the switch to group-owned business chains.
Pick n Pay, which operates franchises for its family supermarkets, argued that franchisees were part of the supply chain and not consumers.
“The franchisor invests huge amounts in establishing and maintaining a franchise system and needs to be secure in the enforceability of the franchise agreement,” the retailer's attorney Janusz Luterek said.
“It seems inequitable that the bill protects the franchisee to the hilt but the franchisor, who has created the business and built the brand, is left out on a limb. The franchisee also needs certainty that the co-franchisees are playing by the rules.”
Aspects of concern were that the bill seemed to infer that a franchisee could cancel a franchise agreement at any time on 20 days' notice, leaving the franchisor unrepresented for a long period.
“The bill would also allow a franchisee to choose his own suppliers despite the fact that franchising was built on brands and often included prescribed supply networks.”
Source: Business Day
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