Levelling the playing field for Franchising

The Abbott Government has released its improved, updated Franchising Code of Conduct.

Australia is the franchise capital of the world and the sector is a great source of enterprise and innovation, and we want to ensure the system is as healthy as it can be.

We have met our election commitment to strengthen the effectiveness of the Code and guard against state-based regulation.

The amendments get the balance right between maintaining a level of regulation to foster the effective operation of the sector while reducing the overall regulatory burden.

This new Code will deliver an estimated $8.6 million per year of savings in administrative costs across the franchising sector. This will encourage innovation and investment in this important area of the economy.

The new Code is the result of extensive consultation and collaboration with all parts of the franchising sector.

Some of the main features of the new Code are:
• the introduction of a statutory obligation on franchisors and franchisees to act in good faith in their dealings with each other;
• a streamlined disclosure process that removes unnecessary information requirements;
• improved transparency in how marketing funds are used and administered;
• more flexible and stronger enforcement options for the Australian Competition and Consumer Commission (ACCC), with the introduction of civil penalties for serious breaches of the new Code, the ability to issue an infringement notice where appropriate and expanded audit powers;
• an information statement that will give prospective franchisees essential information about the nature of franchising before they make a commitment to sign an agreement; and
• a reasonable and balanced restriction on the enforceability of restraint of trade clauses, that still recognises the legitimate interests of franchisors.

To facilitate a smooth transition to the new Code, franchisors will be able to use their existing disclosure documents until 31 October 2015.

Obligations and rights under the current Code will largely continue in the same way they do now after the new Code commences on 1 January 2015.
This means franchisors that might be signing up new franchisees in December and have obligations that continue into the New Year, must still discharge those existing obligations post 1 January 2015, in accordance with the current Code.

The new Code will apply to conduct occurring after the 1 January 2015 start date.

Penalties will apply for conduct after 1 January 2015 that breaches the new Code.

The ACCC is preparing guidance material for franchisors and franchisees, which will be available shortly.

Latest figures show the franchising sector has grown to an estimated 79,000 business units, employing over 460,000 Australians and sales turnover of $144 billion annually. Additionally, 86 per cent of franchise system operating in Australia originated in Australia.

Details can be found here