Changes to the Franchising Code Improving transparency in Australias franchising sector
14 December 2021
14 December 2021
The 2021-22 Budget announced that the Federal Government will provide $4.3 million for the development of a new Franchise Disclosure Register. In September 2021, the Government released details of the proposed Register and invited interested parties to comment on the functionality of the Register's online portal, scope of disclosure, transitional arrangements and draft amendments to the Franchising Code in respect of the Register.
The consultation process is now completed and it is anticipated that the Register will be launched in early 2022 to allow franchisors to voluntarily participate during the transitional period. All franchisors must meet their disclosure obligations by 31 October 2022.
Information on the Register will be made available to the public without charge through an online portal. The purpose of the Register is to facilitate direct access to details about different franchise systems and to assist prospective franchisees to make an informed decision before entering into a franchise agreement.
Some of the key features of the proposed Register include:
On 1 June 2021, amendments were made to the Franchising Code of Conduct in response to the 2019 Fairness in Franchising report, which identified what was considered to be a substantial power disparity between franchisors and franchisees. See our article in the July 2019 edition of IP @Ashurst (Franchisors in the firing line) where we discussed that report.
The latest changes to the Franchising Code aim to address that by improving fairness and transparency of the franchising sector, in line with the overarching goal of the Competition and Consumer Act 2010 to promote competition and fair trading. We have identified below some of the key changes to the Franchising Code of Conduct, many of which affect agreements entered into, renewed, or extended on or after 1 July 2021.
On top of existing pre-entry disclosure obligations, franchisors are now required to provide additional disclosure information to prospective franchisees at least 14 days before the franchisee enters into a franchise agreement or make a non-refundable payment, including:
These additional pre-entry disclosure requirements apply to disclosure documents given to franchisees on or after 1 November 2021.
Franchisors are no longer allowed to contractually pass on to the franchisee:
Franchisors will be liable for a civil penalty of up to 300 penalty units (approximately $54,500) if they breach this prohibition.
Provisions relating to the termination of franchise agreements have been amended such that:
Restraint of trade provisions in a franchise agreement will now only be effective if a franchisee has committed a serious breach of the franchise agreement. This amendment aims to protect franchisees who have only breached the agreement in an insubstantial manner.
Authors: Anita Cade, Partner; and Melissa Ho, Graduate.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.