Proposed changes to the franchising code

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It is clear from the governments release of the exposure draft of the Competition and Consumer (Industry Codes—Franchising) Amendment (Fairness in Franchising) Regulations 2020 in response to the Parliamentary Join Committee’s Fairness in Franchising report that the Commonwealth Government is continuing its focus on regulatory reform in the franchising sector.

The Franchising sector has been a strong focus of the Commonwealth Government for some time and there is a long history of litigation by franchisees against a range of franchisors in recent times.

Most recently there was a number of former franchisees and executives at Retail Food Group who publicly slammed the company as being “unethical and greedy”, as the food retailer faces its first regulatory action over its poor treatment of store owners.

The Australian Competition and Consumer Commission (ACCC) has commenced proceedings against the owner of the Michel’s Patisserie, Donut King and Gloria Jeans chains alleging it misled franchisees into believing the stores they bought were viable businesses.

This is just one example of a long list of disputes that has plagued the industry recent times leading to the 2019 Fairness in Franchising Report and the subsequent release of the exposure draft seeking amendments to the Franchising Code of Conduct (Code).

What are the proposed changes to the Franchising Code?

The proposed changes to the Code include:

  • New disclosure requirements before entering into a franchise agreement to be provided at lest 14 days before entering into the agreement such as a copy of the franchise agreement, a copy of the disclosure document, a “Key Facts Sheet”, a copy of the Franchising Code and a copy of the lease if applicable.
  • The prohibition of Franchisors taking part in certain activities such as a requirement to pay the franchisors legal fees, significant capital expenditure and varying franchise agreements.
  • The cooling off period being extended from 7 to 14 days after signing the franchise agreement.
  • Dispute resolution procedures being improved and being delegated to the Australian Small Business and Family Enterprise Ombudsman.

Breaches of the Code that carry a civil penalty will expose franchisors to penalties to double the current rate (from 300 to 600 penalty units, currently at $133,200).

Apart from the increased penalties (which are dependent on amendments to the Competition and Consumer Act 2010 (Cth) passing parliament), these changes are proposed to come into effect from 1 July 2021.

It is important that franchisors make themselves aware of the proposed amendments and be prepared to update their systems, documents and policies to ensure compliance before 1 July 2021.

Our team has over 25 years of experience in franchising, acting for a range of franchisors across a range of industries. We can provide a detailed briefing on the proposed amendments and can assist in updating your systems, documents and policies to comply with these proposed changes.

If you would like any assistance with your franchising, please contact our team today.

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