Small Business Commissioner Bill - a champion for small business, or a wolf in sheep's clothing?

The SA Government is pushing ahead with a controversial Small Business Commissioner Bill (Bill), which was passed by the Lower House last month and is currently being debated in the Upper House.

Josh Simons and Bronwyn Lee, our specialists advising on franchise law and associated commercial practice, have been closely following the Bill and advising our clients.  They've contributed the following.

The Bill is said to be modelled on the Victorian Small Business Commissioner Act, and was widely supported when first released as an Exposure Draft on 14 February 2011.  However, when the Bill was introduced into Parliament on 28 July 2011, it included a number of significant changes, which have led to the Law Council of Australia and the Law Society of South Australia withdrawing their support, and the Franchise Council of Australia mounting a strong campaign of opposition.

The Bill, if passed, will create a new position of Small Business Commissioner, which is embraced by many Australian States.  The Small Business Commissioner will have several functions, including;

• Monitoring the fair treatment of small businesses in their commercial dealings with other businesses in the workplace
• Receiving and investigating complaints by small businesses regarding unfair market practices
• Mediating between parties
• Mediating retail tenancy disputes between small businesses and landlords

These functions are all consistent with the role of Small Business Commissioners in other Australian states, and are generally supported.  The controversial aspects of the Bill are the provisions relating to industry codes, which were made to the Bill after the Exposure Draft and before the Bill was introduced to Parliament.

There are two ways in which the Bill applies to industry codes: 

The first is in relation to a new penalties regime to be introduced to the South Australian Fair Trading Act, which provides for civil penalties to be imposed for non-compliance with any industry code that is prescribed under the Fair Trading Act.  This can happen in two ways:

* The Small Business Commissioner can issue Expiation Notices for breaches of a prescribed industry code (a sort of 'on the spot fine').  These fines can be up to $6,000 per event.  If they are paid, then this is not regarded as an admission of guilt, and should be the end of the matter.

* Alternatively, the Small Business Commissioner can initiate proceedings in the Magistrates Court, seeking the imposition of a civil penalty order.  If found guilty in such an action, the accused will be liable of an offence, and can face fines of up to $40,000 per offence.

The Law Society of South Australia has criticised this aspect of the Bill, because it will effectively enable the government to introduce new law, punishable as an offence and with significant financial penalties, by simply prescribing an industry code, rather than having to do so through legislation that is scrutinised by the parliament.  While this concept is not new (the Commonwealth has prescribed industry codes under the Competition and Consumer Act 2010 which are enforceable by the ACCC in this way), it is new for South Australia.  There are also concerns amongst some in the business community about exactly what industry codes the government intends to prescribe.

The second is in relation to new investigation rights given to the Small Business Commissioner.  The Commissioner has significant powers to conduct investigations into suspected non-compliance with any prescribed South Australian or Commonwealth industry code.  It is the reference to investigating breach of Commonwealth prescribed industry codes that has concerned a lot of businesses and industry groups. There is no other State law that we know of that gives a State official the job of investigating compliance with a Commonwealth law in this way.

On one view, businesses shouldn't be concerned.  After all, this is just an investigation right, and (as mentioned) penalties only apply to industry codes prescribed under the Fair Trading Act. However, there are two major concerns with this:

* The first is that it is seen by many as signalling the government's intent to prescribe Commonwealth industry codes (or parts of them) under the Fair Trading Act, and thereby make them part of South Australian law.  The franchising industry, in particular, is concerned that the Franchising Code of Conduct will be prescribed in this way.  Minister Koutsantonis has been a long time critic of franchising, and the move has been described as 'franchise regulation by stealth'.

* The second is that the information gathering powers of the Small Business Commissioner are extremely wide, and the confidentiality applying to that information is extremely limited.  Unlike the Commonwealth Competition and Consumer Act, which gives the ACCC similar powers to compel production of information where they have a reasonable basis to suspect there has been a breach of the Act, the Small Business Commissioner just has to demonstrate that his investigation is required for the performance of his functions.  When you consider that his functions include 'facilitating and encouraging the fair treatment of small business in their commercial dealings with other business', you can see that this is a very low threshold indeed.  Then, once the Commissioner has the information, he can disclose it to (amongst others) any person concerned in the administration of another law relating to trade or commercial practices of the protection of consumers.

The Minister for Small Business, Tom Koutsantonis, has been a long time critic of the franchising industry and has been pushing for state-based regulation of franchising for some time.  The Bill is widely acknowledged to be a 'back door' means of introducing franchise regulation.  This could occur in a number of different ways:

* immediately following passage of the Bill, the Commissioner could use his investigative powers to gather evidence against a franchisor, and then pass this on to the ACCC to be used by it to take action under the Franchising Code;

* the government could prescribe the Franchising Code under the Fair Trading Act, which would then make it possible for the Commissioner to prosecute franchisors under the Code directly; or

* the government could look to develop and prescribe its own industry code applicable to franchises.

Whichever approach it looks to take, it seems clear that if the Bill passes, South Australia will be the first state to impose state-based franchising regulation. 

So, why does that matter? 

Well, for one thing, Australia has just gone through a process of harmonising national consumer protection laws, with the Australian Consumer Law introduced on 1 January 2011.  State-based regulation undermines that process, which is one of the main criticisms of the Bill that has been made by the Law Council of Australia. The Law Council has expressed concerns at the apparent lack of coordination with the Commonwealth over how the Bill could work in practice.

There have also been concerns expressed by some (including Federal Small Business Minister Nick Sherry), that the Bill may be unconstitutional.

Whatever the politics of the situation, it seems certain that South Australia will soon have a Small Business Commissioner and, one way or another, it will have the franchise industry in its sites.

Josh Simons can be contacted at josh.simons@minterellison.com