New Franchising Code Released for Consultation: What You Need to Know Now!
The Australian Government has released a draft of the new Franchising Code of Conduct, with a limited consultation period closing on October 29. The updated Code, set to replace the current version on April 1 next year, incorporates changes in response to the 2023 Schaper Review.
A Few Key Changes in the New Code Proposed
The revised Code publicised the overall aims of improving protections and streamlining processes. Some key updates include:
No Separate Key Fact Sheet: while this is required now, with the New proposed Code they are merging this into the Disclosure Document so no separate Key Fact Sheet will be required to be maintained or provided.
Extended Penalties: The new Code proposes to impose penalties on areas not previously covered.
Revised Fund Definitions: Updates to terms like “specific purpose fund” have been done to reflect its proper broader applications beyond the usually noted marketing funds, i.e. conferences and IT funds, so there will be no doubt then that these are relevant funds that will be covered by the audit and disclosure requirements.
Disclosure Opt Out & Cooling-Off Period: Existing franchisees acquiring additional franchises can opt out of the 14-day cooling-off period, and may also be able to opt out of disclosure processes in certain situations.
Faster Termination: Faster termination provisions have been updated to recognise certain additional serious breaches, ie wage theft or serious Fair Work violations.
Extended limitations on Restraints: The last set of changes will go a bit further to cover more instances where a restraint may not be relied upon or used by the Franchisor.
Early Termination Compensation: a new provision that all franchise agreements include provisions for compensation for early termination in specific circumstances. (This arguably works with the return on investment change noted below)
Greater Focus on Investment Returns: One of the significant updates is the requirement for franchise terms to align with the level of capital investment, giving franchisees a reasonable opportunity to earn a return. This applies to all franchisees, and could impact the way franchise agreements and any Terms and options are structured and granted.
Automotive Franchisors: Additional, specific provisions apply to automotive franchisors, including details around service/repair works, a requirement to justify non-renewal of dealership agreements and to work on a wind-down plan if a renewal isn’t offered.
Important Things To Know
Licensing System Is Still Under Consideration: Although the draft is silent on the introduction of a franchisor licensing system in Australia, it remains a possibility. The Government is conducting a cost-benefit analysis to determine its feasibility. This could be a significant change for the sector down the line if it does go forward. It could also be a wait and see how the proposed updated Code and the Franchisor Register, which was only introduced not that long ago, goes with providing the disclosures and details that help potential and existing franchisees make informed decisions about the franchising sector (Although we would have thought that there was an opportunity with the new Code to update the provisions around the register to address some of the concerns we have noted in its existing format).
Simplified Structure of the Code: The new Code format is significantly different from the current one. While the content is largely the same- subject to some of the changes already discussed- franchisors and advisors will need to familiarise themselves with a new structure, which is now divided into three chapters with several parts. This change if it goes through (which we are hoping may not in its current format) may require unintended consequences of adjustments now being required to franchise agreements and other legal documents that reference various now changed sections, wording and/or numbering. The Disclosure Document numbering format has not changed however.
Arbitration and Alternative Dispute Resolution (ADR): The revised Code maintains arbitration as a form of ADR and introduces the potential for public “naming and shaming” for franchisors who fail to engage in ADR processes.
Next Steps
Again, above are just some of the relevant matters to be considered in what should be the last set of regulation changes that will likely be made for a number of years. Public feedback is invited until 29 October 202 and submissions can be made via the Treasury website or by email, with the option to keep parts of submissions confidential.
From the outcome of this consultation process, we may see changes to the new Code proposed that is to take effect from 1 April 2024, with the next review then not scheduled until 2030.
Thus, if your business is involved in franchising, now is the time to, in addition to ensuring you are compliant with the existing Code upcoming deadlines (for most franchisors in Australia this means by 31 October for Code updates and before 14 November for Register updates), review the New proposed Code changes with your expert franchising law advisors, where relevant make submissions and/or start preparing for the transition! April is not far off.
Contact us today for advice on not only ensuring you are currently ticking your franchising boxes, but how the new Code may affect your franchise agreements and processes and next steps to be done.
Please note that this is a general and brief update, it does not purport to be comprehensive legal advice of all information and/or relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action with respect to this area.