The Federal Government yesterday announced a series of proposed changes to the Franchising Code of Conduct (Code). These changes follow the 2018 Joint Parliamentary Inquiry into the operation and effectiveness of the Code, which led to the establishment of a Franchising Taskforce.
The proposed changes put forward by the government are underpinned by a series of principles that look to govern the lifecycle of a franchise: entering into a franchising agreement, operating a franchise and exiting a franchise.
What do the changes to the Franchising Code mean for franchisors?
The government has proposed a number of changes and procedures to the Code that will directly impact franchisors. The changes include:
- Development of a public register of franchisors
- Introduction of a “Key Disclosure Information Fact Sheet” containing a summary of information taken from Disclosure Documents
- Franchisee cooling off rights will extend to transfer of franchise agreements
- Further disclosure of supplier rebates, commissions and other payments
- Prohibition on franchisors requiring franchisees to undertake significant capital expenditure, unless certain conditions have been met
- Prohibition on franchisors from passing on legal costs for preparing franchise documents
- Amendments to the dispute resolution process
- Amendments to facilitate negotiated early exits
- Increased penalties for breaches of the Code.
When are Franchising Code changes coming to effect?
The government has not advised when the changes to the Code will be implemented.
It will likely be some time before the Code is formally amended.
Our two cents on the proposed changes
It’s great to see the government’s support for the franchising sector and its overarching aims to improve transparency and fairness. Franchising has historically been a vital sector to Australia’s economy. This is more important now than ever before.
We acknowledge that we need a strong and resilient franchise industry that consists of appropriate protections for franchisees – particularly as we come out of COVID. What we (and the government should) acknowledge is the inherent risk associated with starting a business (franchise or otherwise). The government and franchisors cannot protect all business owners from their business failing.
What we can do is give them the best chance of succeeding by introducing and amending laws that seek to prevent misconduct, promote transparency and ensure that educated and informed decisions are made by franchisees.
A full copy of the government’s response can be accessed here.
Feel free to get in touch with our franchise team if you have any questions.