Shadow small business minister assisting,Madeline King,said workers were being mistreated and franchisors were not being upfront.
"This taskforce will be integral to ensuring that workers in franchises will not be ripped off in the future,"she said.
Small Business Minister Michaelia Cash said the government would carefully analyse the report and consider what improvements needed to be made before proceeding.
"The government is committed to supporting effective and fair reforms to the franchising sector without imposing unnecessary regulation on the sector,"she said.
Suite of changes
The report recommends a suite of changes to the franchising code,including the inclusion of civil pecuniary penalties and giving the Australian Competition and Consumer Commission (ACCC) more responsibilities and greater enforcement powers to"root out misconduct and exploitative behaviour"in the franchise sector.
The report wants improvements to disclosure and transparency,including the provision of all financial information when franchises are sold or transferred including Business Activity Statements and greater clarity and accountability around marketing funds.
The report recommends the taskforce examine making unfair contract terms in franchise agreements illegal,investigate options for a public franchise register with franchisors providing updated disclosure documents,and template franchise agreements annually.
It recommends civil penalties if franchisors fail to comply.
The report calls for the ACCC,the Australian Taxation Office and the corporate watchdog,the Australian Securities and Investments Commission,to launch investigations into embattled Retail Food Group,its current and former directors and officers for potential insider trading,tax evasion,quality of audit,directors'duties and continuous disclosure.
A spokesperson for Retail Food Group said the franchisor"supports any changes which will be of benefit to the franchising industry".
Evidence to the inquiry revealed “a substantial amount” of intimidatory behaviour and misconduct by franchisors,leading the inquiry to call for whistleblower protections.
The report said the inquiry took a"holistic approach"to address the systemic problems in the sector and recommended the government"avoid cherry picking,and instead implement all the recommendations in[the] report as soon as possible".
Time to act
Senator John Williams,who was crucial in calling for the inquiry into franchising,said none of the 17 inquiries into the sector over the past 30 years had worked.
"The work has now been done. It is time for the government to act,"he said.
Senator Williams said he was aware the industry had serious problems but was shocked at what the inquiry uncovered.
"It was worse than expected. It was like the royal commission into banking,"he said.
Former ACCC head Allan Fels said the franchising code had been"somewhat disappointing"and needed strengthening to be effective.
"The problems with the code have been longstanding and systemic and,accordingly,strong medicine is required and this report goes a considerable distance in that direction,"he said.
The efficacy of the Franchise Council of Australia was questioned in the report,which said the body"does not appear to provide a balanced representation of franchisor and franchisee views". However,FCA chief executive Mary Aldred said the industry body welcomed the inquiry's findings.
"Traditionally we could have done more to incorporate the input of the views of franchisees,I am very alive to that,"she said.
The parliamentary inquiry was triggered by a series of media investigations byThe Age and Sydney Morning Herald into7-Eleven,Domino’s Pizza,Pizza Hut,Caltex andRetail Food Group where franchisees described franchising as"indentured servitude"or slavery.
It was worse than expected. It was like the royal commission into banking.
Senator John Williams
The series exposed crushing business models that pushed franchisees to the wall,leading to a range of issues including financial ruin and marriage breakdowns. To make ends meet,some franchisees engaged in wage fraud.