The Treasury Laws Amendment (2021 Measures No 6) Act 2021 commenced on 14 September 2021. Schedule 2 of the Act was partially announced in the government’s response to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the operation and effectiveness of the Franchising Code of Conduct report: Fairness in Franchising. A main feature of the Act includes greatly increasing the maximum penalty for corporate Franchising Code breaches to the greatest of $10 million, which is largely demonstrative of a greater crackdown on franchisor non-compliance.

Summary of the Act

The following key amendments are set out in Schedule 2 of the Act:

1. The maximum penalty for breaches of the Franchising code of Conduct by corporations has been raised to $10 million.
2. A maximum penalty of $500,000 for individuals who breach the franchising code has been set. 
3. The Act lifts the maximum penalty for breaches of other industry codes (that do not relate to franchising) from 300 penalty units ($66,600) to 600 penalty units ($133,200).

Schedule 4 also seeks to clarify:

1. Pt IVB (Industry codes) of the Competition and Consumer Act 2010.

Maximum Penalty for Corporations

In accordance with Part IVB of the Competition and Consumer Act (2010), Industry codes prescribed in regulations may impose pecuniary penalties for breaches of civil penalty provisions. Previously, the civil penalties which could be imposed were of up to 300 penalty units. The Committee’s report alluded to the inadequacy of the previous penalties, postulating that where penalties are insufficient, franchisors would be likely to factor the risk of a penalty into the cost of doing business therefore diminishing the integrity of the franchising business model. Consequently, the Committee’s report recommended the quantum of penalties available for a breach of the Franchising Code be significantly increased to ensure the penalties are not only a meaningful deterrent from breaches to the code, but also to eliminate the prospect of potential gain for corporations who act in contravention of the Franchising Code.

In actioning the committee’s recommendations and reflecting the penalties in the Australian Consumer Law, Schedule 2 of the Act raises the maximum penalty for breaches of the Franchising Code of Conduct by corporations to the greatest of $10 million; or three times the value of the benefit obtained from the offence (contingent upon whether the court can determine this value); or 10 percent of the annual turnover of the body corporate during the 12-month period in which the act or omission occurred or started to occur.

Maximum Penalty for Individuals

In addition to the raised penalty for corporations in breach of the code, the Act also sets a $500,000 maximum penalty for individuals who fail to comply with the Franchising Code. If the Franchising Code itself does not set these maximum penalties for corporations or individuals, then it may set a maximum penalty of 600 penalty units ($133,200). 

Schedule 4

Schedule 4 of the Act amends part IVB of Competition and Consumer Act 2010 to clarify regulations pertaining to industry participants that are governed by industry codes prescribed by the Act. It amends the definition of “industry code” to clarify that an industry code may contain provisions of a kind prescribed by regulations, whether or not the provisions regulate the conduct of participants in an industry towards consumers or other industry participant.  

Further to this, Schedule 4 amends subsection 51AE(1) through clarifying that if regulations prescribe an industry code, the industry code may confer on a person or body functions and powers in relation to the code such as monitoring compliance or dealing with disputes or complaints.

What do the new amendments mean for me?

Although the increase in penalty units will not impose any additional regulatory burden on businesses that comply with the law, the Act is demonstrative of a crackdown on poor franchisor conduct and non-compliance and acts as a mechanism for deterrence. In the same way, the Act aims to afford greater protections for franchisees therefore restoring confidence in the franchising business model. 

It is important to note, courts will continue to use their discretion in imposing an appropriate penalty up to the maximum amount. The court will consider the relevant facts of any given case, and impose a penalty that is commensurate to the conduct. In saying this, it is unlikely that the maximum penalty would be imposed in every instance but rather reserved for the most significant instances of non-compliance.

How can we help?

If you any have questions or require assistance understanding the new amendments or navigating your obligations under the Franchising Code of Conduct, please do not hesitate to contact a member of Coleman Greig’s Commercial Advice Team who would be more than happy to assist you.

This material is provided by Coleman Greig Lawyers as general information only in summary form on legal topics current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters