New Year Heralds New Era for Franchising Conduct

From New Year’s Day conduct in the franchising sector will be governed by the Abbott Government’s improved and modernised Franchising Code of Conduct.

The new Code heralds a new era for Australian franchising. It will help build confidence across the sector and support informed decision-making to encourage healthy business interactions and best practice.

We promised to review and reform the Franchising Code when we came to Government and it became an important priority for my Small Business portfolio in 2014. The new Code is the result of an extensive period of consultation and the changes have been warmly welcomed across the franchising sector.

Our changes to the Code will deliver an estimated $8.6 million per year in compliance cost savings across the sector.

In addition, the Code streamlines disclosure provisions and helps encourage innovation, growth and investment in this important part of Australia’s small business sector and economy.

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 and makes the disclosure document clearer and easier to understand;
• improved transparency in how marketing funds are used and administered;
• more flexible and stronger enforcement options for the Australian Competition and Consumer Commission (ACCC), including the introduction of civil penalties for serious breaches of the new Code and the ability to issue an infringement notice where appropriate;
• 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 limitation to the enforceability of restraint of trade clauses, that still recognises the intellectual property of franchisors.

To assist in the smooth transition to the new Code, franchisors can continue to use their existing disclosure documents until 31 October 2015. Parties to a franchise agreement must still discharge any obligations and rights that they had on 31 December 2014 under the ‘old’ code after 1 January 2015.

Penalties will apply to conduct that occurs after 1 January 2015 that breaches the new Code.
All franchisors and franchisees are strongly encouraged to make use of guidance material on the new Code prepared by the ACCC.