Franchising Code of Conduct - Government Response & Expected Changes
The franchising sector is a key part of the Australian economy, employing around 520,000 people and contributing more than $135 billion each year. There are more than 1,100 franchisors and 70,000 franchisees operating in Australia, with a majority of franchisors and most franchisees being small businesses.
The Review
In 2023, Dr Michael Schaper was appointed to conduct an independent review (Review) into the main law governing the Australian franchising sector which is the Franchising Code of Conduct (Code). The purpose of the Review was to determine the effectiveness of the current regulatory settings and provide recommendations on how to ensure they are fit for purpose. At the conclusion of the Review, Dr Schaper made 23 recommendations supported by findings and implementation suggestions to Government were made.
Government Response
On 7 May 2024, the Commonwealth Government released its official response to the Review, indicating its acceptance of the reviewer's findings that the Code is generally suitable for its intended purpose.
Accordingly, of the 23 recommendations proposed, all have been accepted except for two, which have only been agreed to ‘in principle’. These two recommendations require further evaluation by the Government as they involve long-term changes aimed at reducing regulatory burden. In summary, some of the short-term changes include:
Amendments to the Code - The Code will only be amended every five years commencing from 2025 changes.
Key fact sheet – The key fact sheet will be removed and merged into the disclosure document.
Return on Investment – Each franchise agreement is to include a requirement for the franchisee to make a reasonable return on their investment, including provisions for the franchisor to compensate franchisees in the event of early termination.
Name & Shame Franchisors – The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) will be granted the power to publicly name any franchisors who fail to meaningfully participate in alternative dispute resolution.
Licensing Regime – The Government will establish a taskforce to investigate the implementation of a licensing regime and consult with the franchising sector throughout the investigation. By way of background, all franchisors must be licenced with a government agency before they can grant franchises.
Penalties – Substantive obligations under the code will attract a maximum of 600 penalty units.
Key Takeaways
We anticipate that the Government will make the relevant changes to the Code prior to the “sunsetting date” on 1 April 2025, with the Government expected to undertake a “staged approach” to rolling out the changes.
Franchisors should prepare for these anticipated changes and consider seeking legal advice if they need help navigating them. This includes reviewing franchise agreements and standard forms integrated into your franchising model.
If you require any assistance concerning franchising, please get in contact with the below:
Alasdair Woodford
Principal
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal
Ben Smith
Lawyer
T: 03 5225 5262
E: bsmith@ha.legal
