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New changes to the Franchising Code of Conduct are set to better protect Australia’s small and family businesses.
The Australian government has revealed a raft of changes to the code of conduct, which regulates more than 90,000 franchisee small and family businesses.
There are three main reasons for the amendments: to improve access to information for franchisees and prospective franchisees, to better balance franchisor and franchisee rights, and to improve access to justice through additional and more efficient dispute resolution processes.
According to business.gov.au and the Australian Competition and Consumer Commission (ACCC), there’s several major ways franchisees, and prospective franchisees, are set to benefit from the reforms:
1. Improved pre-entry disclosure requirements
- Fact sheets which must be completed by a franchisor and given to prospective franchises, along with other disclosure requirements
- Updated information statement given to anyone interested in buying a franchise to better consider the risks and opportunities
- Improved scope for financial disclosure
2. Additional dispute resolution options
You can resolve a dispute with conciliation as well as mediation, and ADR can be done online. Multiple-party dispute resolution and voluntary arbitration are also options for resolving disputes.
3. Longer cooling-off periods
While previously the cooling-off period after entering into a franchise agreement was seven days, this has now been increased to 14 days.
Franchisees are also able to terminate a franchise agreement within 14 days after receiving the proposed lease or terms of occupancy. The 14-day period restarts if the final lease or terms are significantly different to the proposed terms.
New cooling-off rights are also applicable for transfers.
4. Marketing funds and legal costs
The code now uses the word “marketing” — not advertising — with civil penalties now applicable where rules are breached in making payments to and from the marketing fund.
Franchisors must also be more transparent about legal costs where they are passed on to franchisees. They may only seek costs arising from the preparation, negotiation and execution of the franchise agreement — but they must be adequately specified.
5. Changes to franchise agreements
Franchisors are now prohibited from retrospectively and unilaterally varying franchise agreements.
According to the ACCC, a franchisor can only alter or add terms to the agreement that apply retrospectively if the franchisee gives their consent in writing.
6. Restraint of trade clauses
Previously, the code found restraint of trade clauses would be ineffective where a franchisee was not in breach of the franchise agreement.
Now, restraint of trade clauses will not be effective “if the franchisee was not in serious breach of the franchise agreement or a related agreement immediately before the franchise agreement expired”.
According to the watchdog, this will better protect franchisees who have only breached the franchise agreement in a minor, technical or procedural manner.
Timelines
The majority of changes came into effect from 1 July 2021, while improved dispute resolution options have been available to any disputes notified on or after 2 June 2021.
The only amendments with a longer transition period are those which require a franchisor to change the disclosure document, with these amendments to apply from 1 November 2021.
Alongside the new requirements, legislation before the Parliament will “significantly increase penalties for breaches of the code”.
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