Franchising Code of Conduct changes

The Commonwealth Government has issued its Response to the Review of the Franchising Code of Conduct (Background).

Amendments agreed to by the Government include:

  • The Government will amend the Code to ensure that when franchisees are provided with notice of the franchisor’s intention to renew or extend a franchise agreement, they are reminded of their entitlement to request a disclosure document under the provisions of the Code.
  • there will be an alternative short-form disclosure document.
  • The Government will amend the Code to require additional disclosure of the respective rights of the franchisor and franchisee to conduct and benefit from online sales, including any ability or intention of the franchisor to conduct online sales.
  • The Code be amended to require franchisors to provide prospective franchisees with a short summary of the key risks and matters they should be aware of when going into franchising
  • Subject to certain conditions being met, restraint of trade clauses in the franchise agreement which prevent the franchisee from carrying on a similar business in competition with the franchisor, will not be enforceable by the franchisor against the franchisee.
  • There will be a refinement of disclosure of the risks of potential unforeseen capital expenses
  • The Code will be amended to make the administration of marketing funds more transparent and ensure that marketing and advertising funds are spent on legitimate expenses related to the marketing and advertising of the franchise system.
  • with respect to yearly audit, the Government accepts that, if 75 per cent of franchisees agree an audit is not required for a particular year, then it may be an unjustified compliance cost to require a franchisor to arrange an audit. The Government will provide an exemption in these circumstances
  • The Code will be amended to include an express obligation by the parties to act in good faith. The ACCC will provide education about the meaning of this obligation.
  • the Government will legislate to ensure that the ACCC has the power to seek pecuniary penalties for Code breaches. The Government will undertake further detailed consideration of the appropriate maximum pecuniary penalty, and will consider whether different maximum penalties should be prescribed for different breaches of the Code to reflect that more serious breaches should attract higher penalties.
  • The Competition and Consumer Act will be amended to allow the ACCC to use its powers under section 51ADD of the CCA (its random audit powers) to assess a franchisor’s compliance with all aspects of the Code, not just to require the production of documents created under the Code.

There will be further consultation about standard contract terms for automotive dealerships.

The Government does not agree to amend the Code to state that marketing or other cooperative funds are to be treated as trust funds or held in a trust account.

The Coalition has indicated its support for the changes. To implement this Government response, amendments will be needed to both the Competition and Consumer Act 2010 (Cth) and the Trade Practices (Industry Codes – Franchising) Regulations 1998 (the Code).

It is expected that the changes foreshadowed in this Government response will only apply to franchise agreements entered into after the passage of legislation through Parliament. This excludes changes to the enforcement regime; pecuniary penalties and infringement notices will be able to be sought by the ACCC for all breaches of the Franchising Code from a particular commencement date.

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