Franchising Code of Conduct amended to further protect businesses
Amendments have been made to Australia’s Franchising Code of Conduct, protecting over 1200 brands and over 90,000 small and family businesses in the franchising sector.
Australia’s franchise sector contributes $154 billion dollars a year, making a major contribution to the economy. The Franchising Code of Conduct protects businesses within the sector by regulating the conduct of franchising participants.
The amendments made to the Code improve the fairness and transparency of the franchising sector. These amendments address the franchising sector in general and change for new vehicle dealership agreements.
The amendments will:
- allow better access to information for franchisees and prospective franchisees
- balance the rights of franchisors and franchisees
- Improve access to justice through additional, more efficient dispute resolution processes
With the new amendments, franchisees and prospective franchisees will benefit from the improvements made to pre-entry disclosure requirements.
This includes the introduction of a new key facts sheet, which must be completed by the franchisor and provided to prospective franchisees. There will also be other disclosure documents that will help a franchisee in making an initial assessment about a franchise offer.
The amendments also provide an updated information statement to anyone who expresses interest in buying a franchise. This will help interested buyers consider the risks and opportunities associated with franchising.
The amendments create improvements to the scope of financial disclosure. This includes requiring additional information relating to goodwill.
The changes within the Code allows a more specific disclosure relating to supplier rebates, extra dispute resolution options, a longer cooling-off period of 14 days, new cooling-off rights for transfers, a prohibition on franchisors passing on certain legal costs and a prohibition on franchisors retrospectively and unilaterally varying franchise agreements.
The amendments also provide protection for new vehicle dealership agreements, expanding the definition of motor vehicle dealership and provisions for fair and reasonable compensation for franchisees in the event of early termination.
The 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. This will 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.
The Australian Government is committed to increasing the penalties for breaches of the Code as the legislation for such is currently before the parliament.
A new Franchise Disclosure Registry is also being developed. This Registry will assist prospective franchisees to make an informed decision before entering a franchise agreement and will come into effect in 2022.
The Government plans to release an automotive franchising discussion paper shortly.