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Changes to the Franchising Code of Conduct

Catherine Sedgley ||

Over the last 12 months, the Franchising team at Coleman Greig has been closely monitoring and reporting on the proposed changes to the Competition and Consumer (Industry Codes – Franchising) Amendment (Fairness in Franchising) Regulations 2021 (the Franchising Code of Conduct or the Code).

On 1 June 2021, the Federal Government released its final amendments to the Code and the Explanatory Memorandum. To level the playing field for franchisees with their franchisor, the amended Code will place harsher burdens on franchisors in the operation of their franchise networks and in their dealings with franchisees.

Key changes for franchisors include:

  • An extension of dispute resolution and complaints handling options and processes;
  • Greater disclosure of significant capital expenditure required to be undertaken by franchisees during the term of their franchise agreement;
  • The introduction of new civil penalty provisions for non-compliance by franchisors;
  • Tougher maintenance obligations of marketing funds by franchisors;
  • The introduction of early exit and termination provisions for franchisees;
  • New requirements for franchisors when passing on their legal costs to franchisees;
  • Improved disclosure of restraint of trade clauses in franchise agreements; and,
  • Extended pre-entry disclosure obligations for franchisors concerning supplier rebates, prior involvement by franchisors in alternative dispute resolution with franchisees, leasing of business premises by franchisees or a related entity to franchisees, the term of the agreement, what Alternative Dispute Resolution processes are available to franchisees and the transfer of any goodwill to franchisee.

The amendments to Code relating to dispute resolution commenced on 2 June 2021, with the balance of the amendments applying from 1 July 2021 or 1 November 2021 in the case of making changes to a franchisor’s disclosure documents.

Whilst most of the changes only apply to franchise agreements entered into, renewed or extended on or from 1 July 2021, some of the changes will apply to existing agreements. To ensure consistency and avoid confusion within a franchise network, franchisors may also wish to consider varying existing agreement to accommodate the changes or moving their franchisees over to a new agreement.

In addition to making changes to their franchise agreements and disclosure documents, franchisors may also need to amend their internal processes, including when recruiting and on-boarding new franchisees and prepare and introduce new documents to accommodate the changes. Franchisors may also need to devise new internal processes for dealing with requests received from franchisees wishing to terminate their franchise agreement early and for handling disputes.

We have summarised the key changes to the Code in Table 1 and Table 2.

If you operate a franchise in Australia, it is time to review your franchise agreements, disclosure documents and other transaction documents. If you require any advice or assistance regarding your franchise, please contact a member of Coleman Greig’s Franchising Team, who would be more than happy to assist you today.

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