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Where once there was a local butcher and the local baker, there is now a Mad Butcher and a Baker's Delight. Franchises are taking over businesses across the world but New Zealand's legal protection for often vulnerable franchisees may not be up to scratch, according to two Auckland business academics.
Gehan Gunasekara and Alexandra Sims, of the University of Auckland's Business School, say the time has come for lawmakers "to make franchising a level playing field" by bringing in some rules to protect franchise owners.
The case of Dunedin Subway worker Jackie Lang this week showed how the actions of one franchise owner can damage the reputation of others - who may have little say in how their fellow franchisees run their companies.
Lang was fired by Subway and charged with theft by police after she shared a soft drink with a friend during a break. Police have now dropped the theft charges and the employment case is heading to mediation.
Union rep Bill Clark said he was dismayed at the lack of any knowledge of employment law shown by the Dunedin Subway owner, despite it supposedly being part of a global chain.
When calls for a Subway boycott were made, Subway's head office said that employment cases such as Jackie Lang's were up to individual franchise owners - not them.
The most recent research into franchising commissioned by the Franchise Association in 2003 showed the sector was worth $7 billion and employed more than 40,000 people.
Gunasekara, a senior lecturer and specialist in franchise law, says there is "an unfairness aspect" to the relationship between a franchiser and the franchisee - with the franchisee at a disadvantage.
"The opportunities for exploitation are much greater on the part of the franchiser than the franchisee," he says. "That's why most countries that have regulation have tried to address that particular issue."
The basis of most regulation - in places such as Australia and the US - is a requirement the franchiser provides full disclosure, which includes telling potential franchisees about other relationships, such as kick backs or ownership of a supplier that must be used.
Australia has gone a stage further, with the law saying there can be no action of an "unconscionable manner". This was designed to stop franchisers "bullying" franchisees.
In New Zealand, there is nothing to stop a franchiser "strong arming or heavying franchisees," says Gunasekara.
While the whole point of a franchise is to have uniformity, there have been cases where "franchisees can be clobbered into doing things that may not be in their own self interest".
Australian franchise operations coming to New Zealand are currently offering contracts "a third to a half" bigger than agreements used locally.
Business format franchises are not even properly defined in New Zealand law, says Gunasekara. Some buying franchises did not realise the very real differences between owning a franchise and "being their own boss".
"You're not really your own boss, that's what people don't realise, they think they're going to be their own boss and they are in the short term - there is a certain flexibility.
"At the end of the day, they have to account to the franchisers.
"You are no better off than an employee in many respects, and if things go wrong you don't have a grievance procedure like an employee does."
At a minimum, legislation mandating a dispute resolution mechanism needs to be adopted in the franchise sector, says Gunasekara.
Peter Fergusson, chief executive of the Franchise Association of New Zealand, says disclosure is an important part of the code of conduct and standards required by the association. Membership of the association, is however, voluntary.
Fergusson says if the association members were all gathered in a room and asked if they wanted regulation "it'd be probably 50-50" for and against.
Of the estimated 354 franchises systems operating in New Zealand, 207 are members of the association.
Caution was needed when regulating across the market, legislation needed to cover a small lawn-mowing franchise, for instance, was different to that needed by the used car, or oil industry.
The danger in regulating would either be that any rules would be too weak to work at the "worst end", or they'd be so onerous that they would "crush the little guy".
Fergusson says that if every franchise was required to meet the Franchise Association's code of ethics and code of practice then there would be no need for any Government regulation.
"Our stance at the moment is that we're not proactively pushing for legislation," he says.
"However, we do have codes of ethics and codes of practices right now, that if the entire franchise community were to adopt, then things would be a lot better."
Membership of the Franchise Association - which tries to convince potential franchise buyers not to part with their money unless a franchiser is a member - is increasing "reasonably dramatically", says Fergusson.
Any legislation trying to cover "every possibility" would carry the risk of being over-done. There was "caution from our perspective... should every franchise system work and operate to good ethical and moral standards - to the standards we promote? Absolutely, yes. Disclosure, mediation, cooling off periods - are an absolute must."
Fergusson is hopeful that the association would, eventually, get up to 90 per cent of the industry to become members, which would mean the sector could be essentially "self regulating."
Gunasekara says he does not think there is "any impetus at the moment" from Government to bring in any rules covering the franchise sector.
Lianne Dalziel, Minister of Commerce and Minister for Small Business, told the Herald on Sunday that she had yet to see evidence "that makes a compelling case for regulation to be put in place."
She said the self-regulatory model run by the Franchise Association "worked very well for its members".
"I'm already looking at the related issue of unconscionable conduct and what can be done to protect small businesses from being forced into contract deals they wouldn't otherwise wish to accept."
