FRANCHISING CODE OF CONDUCT

What We Do

Greyson Legal is a franchise law firm well versed in the interpretation and application of the Franchising Code of Conduct ("Code"). As part of our Franchisor Legal Services, we ensure our Franchisor clients are aware of their obligations under the Code and we assist them to meet the Code requirements.

When we represent Franchisees, our role includes ensuring the Franchisor has provided a Franchisor Disclosure Document in compliance with the Code; and to advise you of your rights and obligations under the Code.

For assistance on how the Franchising Code of Conduct applies to you, contact Greyson Legal.

Franchising in Australia is regulated through the Franchising Code of Conduct. The Code is:

  • a mandatory industry code prescribed under section 51AD of the Competition and Consumer Act 2010 (CCA); and

  • designed to regulate the conduct between franchisors and franchisees with the objective of providing consumer protection measures to help offset the power imbalance in the franchise relationship.

The Code regulates in a number of ways:

  • setting out criteria as to when an arrangement/agreement will be considered a franchise relationship/Franchise Agreement, and thereby subject to the Code;

  • franchisor disclosure obligations to franchisees;

  • certain minimum rights for Franchisees; and

  • adoption of a dispute resolution procedure, ie. mediation.

Australian Consumer Law (ACL)

In addition to the Franchising Code of Conduct, franchisors and franchisees must also comply with obligations and protections under the CCA, including the Australian Consumer Law.

The CCA provides additional protections beyond those in the Code. These include, among others:

  • prohibiting false representations and misleading or deceptive conduct;

  • prohibiting unconscionable conduct;

  • providing a means of challenging unfair contract terms in standard form small business contracts (which can include franchise agreements).

Australian Competition and Consumer Commission (ACCC)

The ACCC enforces compliance with the Code. Their current powers extend to:

  • undertaking random audits of franchisors;

  • issuing notices requiring franchisors to respond to claims/complaints;

  • issuing infringement notices requiring payment of penalties;

  • issuing public warning notices about the conduct of a franchisor; and

  • the ability to seek appropriate court orders, eg. for damages/compensation.

Code under Further Review

The franchising sector has undergone various Government reviews over several decades.

The current Franchising Code of Conduct is the 1 January 2015 version.

The Parliamentary Joint Committee on Corporations and Financial Services carried out an extensive inquiry into the franchise sector and provided its Report ("Fairness in Franchising") in March 2019.

The Report:

  • listed over 70 recommendations;

  • detailed substantial changes to the Franchising Code of Conduct;

  • proposed further increases to the powers and responsibilities of the ACCC.

Some of the main recommendations included:

  • creating a Franchising Taskforce to assist with implementing the Parliamentary Joint Committee's recommendations;

  • urging franchisees to develop their own national association (given the Franchise Council of Australia (FCA) are more aligned with franchisor opinion); 

  • increasing disclosure obligations on the Franchisor - both prior to and during the franchise relationship;

  • provision of earnings and financial information when franchises are sold or transferred;

  • greater clarity, consistency and accountability with respect to the use and reporting of marketing funds;

  • creation of a public franchise register;

  • increasing transparency, particularly around disclosure of supplier rebates and commissions;

  • greater emphasis on unfair contract terms;

  • further clarifications around cooling off rights;

  • providing additional exit rights to franchisees; 

  • greater transparency around the allocation (if any) of goodwill;

  • protections for franchisees when required to undertake significant capital expenditure near the end of the term of a franchise agreement;

  • adding binding arbitration as a method of dispute resolution - including the capacity to award remedies, compensation, interest and costs;

  • adding civil pecuniary penalties for breaches of the Code, similar to Australian Consumer Law;

  • ability to intervene in cases of churning (ie. repeated sale of failed franchise locations) and burning (continually opening new, likely unviable, outlets to benefit from upfront fees);

  • increasing education and resources available to franchisees; and

  • encouraging clarity regarding retail lease arrangements.

The recommendations of the Parliamentary Joint Committee are:

  • driven in part by the large number of instances of misconduct and exploitative behaviour by franchisors, which the Committee considered to be systemic in a number of cases; 

  • designed to further redistribute the power imbalance inherent in the franchisor-franchisee relationship so that it is more in favour of the franchisee; 

  • aimed to provide a framework that evens out the playing field making it fairer for all participants; and

  • designed to lift standards and conduct across the entire franchising industry, because as the Committee has said: "...on the balance of evidence given to the committee in public and in confidence, far too many franchisors are abusing the power imbalance between themselves and their franchisees".

It is unclear at this point how many of the Parliamentary Joint Committee's recommendations will become law. This will become more evident as the Franchising Taskforce carry out there further investigations .

Whilst the Parliamentary Joint Committee's recommendations may not yet be law, we still strongly encourage you to seek legal advice from lawyers familiar with franchising, such as Greyson Legal so that we can assist to ensure:

  • all franchise documentation is Code compliant; and

  • you understand your rights and obligations.