Proposed Changes to the Franchising Code of Conduct

Alan Branch

The Australian government has just announced that it is proceeding on with a detailed review of the Australian compulsory Franchising Code of Conduct. This announcement proposes that changes will be implemented on 1 January 2015 and will include:

  • The introduction of a definition that both parties to a franchise agreement must act in good faith, act honestly and not arbitrarily and to achieve cooperatively the purposes of the franchise agreement. This obligation will not supersede general legal rights or other legitimate commercial interests particularly when dealing with third parties.
  • The previous obligation to issue a disclosure document for each and every level of a franchise system has been dispensed with. This will reduce the level of paperwork provided to a franchisee.
  • Additional information will need to be provided to a franchisee prior to the franchisee receiving the final form disclosure document. Details of this additional information have not yet been finalised.
  • Where a franchise involves leased premises, the franchisor will need to be transparent with any inducements received from the lessor of those premises.
  • A compulsory modification of the restraint of trade provisions applying to franchisees in the situation where it can be shown that the franchisor has not granted a renewal of the franchise term and has not been provided alternative appropriate compensation.
  • The activities of a franchisor in managing and handling the franchise marketing fund will be restricted and additional transparency of information will be required.
  • A recognition that online trading conducted by a franchisee that harms the financial interests of the franchisee will now be subject to greater disclosure to enable a franchisee to have a more informed view prior to signing a franchise agreement.
  • Currently unsatisfactory wording in the code relating to the right of a franchisor to immediately terminate are to be improved.
  • Where a mediation of a dispute occurs, the right of the franchisor to demand the franchisee pay the franchisor’s costs has been restricted.
  • Increased financial penalties which will now be up to $51,000 AUD for each breach of the code will apply and it is likely that there will be more infringement notices issued by the regulatory authority.

Due to the fact that the implementation of these changes will be subject to the usual consultation and political process, some of the points in this summary may be modified including the proposed commencement date in early 2015. As more definite information is published this note will be updated.

This article is for general information and the reader should seek specific expert advice before taking any action.

Posted in: Franchising

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