The changes made to the Franchising Code are the Australian Government’s response to the 2019 report on Fairness in Franchising. It identified many areas to improve fairness and transparency in the franchising sector.
The key changes are summarised below.
There are more alternative dispute resolution options, including multiple party attendance and voluntary arbitration.
Pre-entry disclosure information
Franchisors need to provide:
• the Information Statement before other documents
• a summary of the Disclosure Document called the Key Facts Sheet
• lease information and disclosures if occupancy rights are granted through the Franchisor
• significant details on rebates and benefits received by Franchisors from suppliers
• percentages of Franchisees involved in alternative dispute resolution in the last year
• the rights a Franchisee has to goodwill they generate
• details on restraint of trade obligations
• significant detail on Franchisee capital expenditure
Extended cooling off period
It has increased from 7 to 14 days after relevant information is provided or payment has been made. The cooling off period now also applies to transfers of franchise agreements.
Franchisee can terminate after receiving leasing information
They have 14 days to do so.
Terminating a franchise agreement
Franchisees can propose an early end to the agreement. This not a right to end it.
Franchisors now need to provide 7 days notice before terminating for special circumstances. If Franchisees dispute the notice, this period can be paused for 28 days to allow a resolution process to occur.
Obligations now apply to the fund administrator (not just the Franchisor) and there are penalties for non-compliance.
Passing on legal costs
The Franchisor can only pass on the stated, fixed legal cost for the preparation, negotiation and execution of the franchise agreement before it is signed.
Retrospectively varying a franchise agreement
Can only be done with Franchisee consent.
Restraint of trade clauses
These clauses are not effective if the Franchisee was not in serious breach immediately before the franchise agreement expired.
When do the changes apply?
The dispute resolution changes apply to all disputes notified after 2 June 2021.
The other changes apply to all franchise agreements entered into, renewed or extended on or after 1 July 2021. The changes relating to the disclosure document apply from 1 November 2021.
Keep an eye out for future changes, including doubling of penalties for non-compliant Franchisors from 300 penalty units to 600 penalty units ($133,200). The government is also funding a Franchising registry, it is speculated that Franchisor’s will need to register their disclosure documents in the future.
What do Franchisors need to do?
Franchisors are required to review, update and prepare Disclosure Documents, Franchise Agreements, Key Facts Sheets and other documents. Time frames and processes for granting and signing franchise agreements also needs to be updated.
This will lead to higher administration and compliance costs.
What do Franchisees need to do?
There is nothing immediately required of Franchisees.
Franchisees do need to know, understand and apply their new rights for the betterment of their business. It is hoped that the changes will lead to better informed decision making and increased enforcement actions from the relevant authorities.
If you have questions, want advice or more information please contact us.