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Collective bargaining for franchisees: how to negotiate better terms together without raising competition concerns

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Collective bargaining presents an attractive option for franchisees. By joining forces and splitting negotiating costs, franchisees can use collective power to strengthen their bargaining position and negotiate more favourable outcomes with suppliers, or their franchisor (subject to compliance with the exemption).

Franchisees do not often exercise this option due to:

  • a lack of clarity regarding the legality of collective bargaining, and the steps to be taken in order to protect their business from scrutiny by the Australian Competition and Consumer Commission (ACCC);

  • the process being non-binding on the target party asked to engage in collective bargaining with the group; and

  • other avenues being open to advance ideas and positions such as Franchise Advisory Councils.

This article will provide an overview of collective bargaining, the laws which govern it and offer a step-by-step guide for legally compliant collective bargaining by franchisee with their franchisor.

Slightly different criteria will apply for franchisees collectively bargaining with their suppliers or potential suppliers and specific advice should be sought if this is being considered.

What is collective bargaining in the franchise context?

Collective bargaining involves two or more franchisees coming together to form a bargaining group.

Instead of having individual discussions with their franchisor regarding commercial terms, the bargaining group can negotiate as a collective, and will typically advocate for terms on behalf of all members of the bargaining group.

The bargaining group may choose to appoint a representative, usually someone within their group or sometimes an agent or industry association, to negotiate on behalf of the group.

Collectively, franchisees may negotiate with their franchisor about a range of matters including prices, supply arrangements, and contractual terms that they may wish to change, remove, or add.

The law on collective bargaining – Notification and Authorisation processes

The Competition and Consumer Act 2010 (Cth) generally prohibits businesses from negotiating collectively with competitors, as this lessens competition in the market.[1]

Businesses are therefore typically expected to act independently when making commercial decisions such as negotiating contractual terms, prices, and engaging suppliers.

Ordinarily, businesses would need to seek an exemption from the ACCC by lodging a notification, or applying for authorisation.[2] This exemption is not granted immediately, and requires the lodgement of a formal application and payment of a fee. See the ACCC website for further information on this process.

However, the ACCC has created an exemption from this requirement for small businesses and franchises which provides a much simpler path forward.

Class exemption for small business collective bargaining

All franchisees, regardless of turnover, are exempted from the restrictions on collective bargaining outlined above when negotiating with their franchisor under the collective bargaining class exemption.[3]

This means that franchisees are free to form collective bargaining groups to negotiate with their franchisor without needing to seek an individual exemption from the ACCC.

What you need to do to be protected:

  1. A one-page notice form must be submitted to the ACCC when the bargaining group is formed; and

  2. A copy of the above notice form must also be given to each business that the group will be bargaining with, i.e. to the franchisor, at the time when the group or their representative first approaches the business.

 

To rely on the exemption, the following conditions must be met:

  1. All members of the bargaining group must be franchisees of the same franchisor. If this is not  the case, then the regular notification or authorisation process for applying for an exemption from the ACCC will be required.[4]

  2. The group must be collectively bargaining directly with their franchisor. If the group wishes to negotiate with another entity, such as a supplier or customer, then the exemption will only apply if each franchisee member of the group has an aggregated turnover of less than $10 million in the financial year prior to joining the bargaining group.[5]

  3. All members of the group must enter the negotiations with the expectation of entering into a contract with the franchisor or other business.[6]

If you would like to discuss this or obtain advice on the ability of a franchisee group to negotiate with a supplier please contact either Alicia or Inshani whose contact details appear below.

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Inshani Ward
Senior Associate
T: +61 3 9611 0110 | M: +61 413 557 157
E: iward@sladen.com.au

Key resources:

Alicia Hill