Posted by Elizabeth Gore-Jones
on 7 May 2024
An independent review of the Franchising Code of Conduct was delivered in December 2023.
The Minister for Small Business stated, “… We will improve protections for franchisees by requiring all franchise agreements to provide a reasonable opportunity to make a return on their investment, and to ensure that franchisees are appropriately compensated if their agreement is terminated early.”
The Government has stated they will undertake a comprehensive cost-benefit analysis of introducing a franchise licencing regime.
The review found that the Code is generally fit-for-purpose with some changes recommended to improve its operation.
A benefit for both franchisors and franchisees is that it is intended to simplify the disclosure requirements so that each party can better understand their roles and obligations.
It is also intended to increase the number of breaches of the Code that attract penalties and to publicly name franchisors that fail to meaningfully participate in alternative dispute resolution (ADR) processes.
The good news is that the Code will be changed so that the Key Facts Sheet is merged into the Disclosure Document.
Also, good news for all parties is that the Government is looking at streamlining some of the requirements for entering into a franchise agreement, including the disclosure period and the cooling-off period, making it easier for renewal of existing franchise agreements.
Another recommendation of the review was that further guidance be given about the parties’ good faith requirement and a consultation process between franchisors and franchisees when considering major changes to the franchise system.
One of the major focus points appears to be access to legal support in a more cost-effective manner.
Some of the most important recommended changes are as follows
1. The Government should ensure more comprehensive and robust statistics about the franchising sector;
2. The Code will be redrafted largely in its current format before April 2025, having regard to the changes recommended in the review;
3. The Code will be reviewed in five-yearly cycles in the future;
4. The disclosure and pre-entry information given to franchisees will be simplified and consolidated;
5. Franchisor obligations under the Code in relation to existing franchisees will be simplified and streamlined;
6. Additional information will be included in the Franchise Disclosure Register about dispute resolution and adverse actions brought by enforcement agencies;
7. Franchise systems will be encouraged to consult with franchisees about major changes to the business model;
8. Provisions relating to termination for serious breaches will be simplified and the changes made in 2021 will be revisited;
9. Best practice guidance should be provided to franchisees and franchisors regarding franchisee-initiated exit;
10. Further work to be done to limit the use of unreasonable restraints of trade;
11. Additional power should be given to name franchisors who have not meaningfully participated in ADR;
12. The Government should assist franchisees to access low-cost legal advice on prospects prior to formal ADR;
13. The Government will implement its commitment to a designated complaints function for the ACCC;
14. The scope of penalties to all substantive obligations will be 600 penalty units and the Government will consider increasing the penalty units to 60 penalty units for infringement notices issued for a breach of the Code; and
15. The Government will consider introducing a licencing regime.
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