Upcoming Changes to the Franchising Code of Conduct
In brief
On 7 May 2024 the Australian Government released its response to the Independent Review (“Review”) of the Franchising Code of Conduct (“Code”). The Review was performed by Dr Michael Schaper and contained 23 recommendations supported by findings and implementation suggestions. The government endorsed all of the recommendations. This article will explain some of the key findings from the Review and its potential impact on franchisees or franchisors.
Key findings
The Review found the Code is generally fit-for-purpose. However, the Review highlighted several steps that can be taken by the government to provide regulatory stability for the sector.
The key findings and recommendations made by the Review are summarised below:
Purpose of the Code: The Review found that there is a significant misunderstanding by franchisors and franchisees about what the Code is meant to achieve and what it does and does not cover. All parties bound by the Code should understand its purpose. Therefore, the government will address this concern by inserting a clear statement of purpose of why it exists into the Code.
Streamlining disclosure: Disclosure requirements are often burdensome to both franchisees and franchisors and repetitive. The government will reduce compliance burdens with streamlined disclosure processes, such as where the franchisee is renewing or extending their franchise agreements.
Good faith principles: In general, parties are required to act honestly and fairly during a franchise relationship. There is no need to further regulate the definition of ‘good faith’. The Review noted the importance of the definition being flexible to adapt to the changing legislative landscape. The Code and developing case law appropriately balance the interests of franchisors and franchisees.
Enforcement by the ACCC: The Code will have a stronger focus on its enforcement by increasing the number of breaches and increasing the financial penalties. The Australian Small Business and Family Enterprise Ombudsman will be given powers to ‘name and shame’ franchisors who have not meaningfully participated in alternative dispute resolution.
Review of the Code: The government agreed that there should be statutory reviews of the Code every 5 years.
Simplifying termination: The Code will now permit immediate termination of franchise agreements in appropriate cases where there have been serious breaches such as fraud or abandonment.
Take aways
The upcoming amendments to the Franchising Code of Conduct will come into operation from April 2025. Our experienced team at Furman+Furman is here to guide you through the complexities of the new changes to the Code and provide expert advice.
Contact us today to discuss your franchising obligations.