Disclosure Requirements, Good Faith Obligations And More – What Do The New Amendments To The Franchising Code Of Conduct Mean?

The humble franchise can be sized from small, family-owned businesses to major corporations, and can be found throughout shopping centres and streets.

With over 90,000 franchises classified as small or family businesses, it’s important to be aware of the protections that govern their interactions within the sector.

The Australian Competition and Consumer Commission (ACCC) is the government agency that administers and enforces the TTPA and franchising, and also investigates and prosecutes non-compliance with the Franchising Code of Conduct. The Franchising Code of Conduct must be complied with as a mandatory industry code, as it regulates the conduct of franchising participants towards one another.

The Franchising Code includes:

  • disclosure requirements
  • a good faith obligation
  • a dispute resolution mechanism
  • a cooling-off period
  • procedures for ending a franchise agreement.

From 1 July 2021, new amendments were introduced to the code to enhance the welfare of Australians by promoting competition and fair trading in the franchising sector and providing for the protection of parties who wish to enter into franchise agreements.

The primary purpose of the Competition and Consumer (Industry Codes – Franchising) Regulations 2021 (the latest amendments to the Code) is to improve the fairness and transparency of the franchising sector overall. The new amendments address both the franchising sector in general and the changes that new vehicle dealership agreements need to comply with.

What Do These Amendments Mean? 

Essentially, the new amendments have been implemented to:

  • Improve access to information for franchisees and prospective franchisees
  • Better balance the rights of franchisors and franchisees
  • Improve access to justice through additional, more efficient dispute resolution processes

Franchisees will now benefit from improvements to pre-entry disclosure requirements, including the introduction of a new key facts sheet (to be completed by the franchisor and provided to prospective franchisees).

They must also be provided with additional disclosure documents to help franchisees make an initial assessment about a franchise offer and an updated information statement that helps to consider the risks and opportunities associated with franchising. Other improvements to the existing code include:

  • extra dispute resolution options
  • a longer cooling-off period of 14 days, and new cooling-off rights for transfers
  • a prohibition on franchisors passing on certain legal costs
  • a prohibition on franchisors retrospectively and unilaterally varying franchisee agreements.

For new vehicle dealership agreements, the Code amendments make specific changes. These changes include:

  • Expanding the definition of motor vehicle dealership to recognise agency models, and
  • Provisions for fair and reasonable compensation for franchisees in the event of early termination.

Improved dispute resolution options will be available to any dispute that is notified on or after 2 June 2021. The majority of the other reforms will come into effect on 1 July 2021 and apply to agreements entered into, renewed, or extended on or after this date. Amendments that require a franchisor to change the disclosure document have a longer transition period and will apply from 1 November 2021.

If you are a franchiser of a business or are a franchisee looking to start your new journey, you will need to ensure that you are acting in compliance with the current and future amendments. You can speak with a legal professional to discuss your legal obligations and requirements.

Leave a Reply