Find out about changes to the Franchising Code of Conduct.
Australia’s franchise sector makes a major contribution to the economy. The sector is worth $154 billion dollars a year with over 1200 brands and over 90,000 franchisee small and family businesses.
Amendments have been introduced to the Franchising Code of Conduct (the Code) to protect small and family businesses in the franchising sector.
Why is the Franchising Code of Conduct being amended?
The Franchising Code of Conduct is a mandatory industry code across Australia that regulates the conduct of franchising participants towards each other.
The purpose of the Competition and Consumer (Industry Codes—Franchising) Amendment (Fairness in Franchising) Regulations 2021 (the Code amendments) is to improve the fairness and transparency of the franchising sector.
The Code amendments improve the current Franchising Code of Conduct to address both the franchising sector in general and changes for new vehicle dealership agreements.
The amendments will:
- improve access to information for franchisees and prospective franchisees
- better balance the rights of franchisors and franchisees
- improve access to justice though additional, more efficient dispute resolution processes.
What are the Franchising Code amendments?
Franchisees and prospective franchisees will benefit from:
- improvements to pre-entry disclosure requirements including:
- introduction of a new key facts sheet which must be completed by the franchisor and provided to prospective franchisees, along with other disclosure documents to help a franchisee to make an initial assessment about a franchise offer
- an updated information statement that must be given to anyone who expresses interest in buying a franchise to help consider the risks and opportunities associated with franchising
- improvements to the scope of financial disclosure, including requiring additional information relating to goodwill
- more specific disclosure relating to supplier rebates.
- 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.
Protections for new vehicle dealership agreements
The Code amendments also make specific changes targeted for new vehicle dealership agreements. 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.
When will they come into effect?
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 which require a franchisor to change the disclosure document have a longer transition period and will apply from 1 November 2021.
The Government has committed to significantly increase penalties for breaches of the Code. Legislation is currently before the parliament.
A new Franchise Disclosure Registry is being developed which will assist prospective franchisees to make an informed decision before entering a franchise agreement. The Registry will come into effect in 2022. If you would like to be part of the industry consultation process on the Registry, email SmallBusinessFranchising@treasury.gov.au.
The Government plans to release an automotive franchising discussion paper shortly.
For more information visit www.business.gov.au