The Franchising Code of Conduct (the Code) sunset date is 1 April 2025 which means the Code then ceases to exist and will then not be legally enforceable after 27 years in operation since its establishment in 1988. The Code provides a framework for fairness in franchising for both parties and addresses the power imbalance between franchisors and franchisees. The government appointed Dr Michael Schaper to undertake an independent review of the Code on 15 August 2023 and the report was released 8 February 2024 by the Minister for Small Business (the Hon Julie Collins MP) to evaluate its effectiveness and provide recommendations. All 23 recommendations were accepted to be implemented by the government over time.

Enforcement by the ACCC
The review found the Code was generally fit for purpose with some shortfalls in enforcement as the ACCC had insufficient resources to pursue action for breaches and could only focus its attention on large scale breaches affecting a large group of franchisees. The government agreed the Code should be remade prior to its sunset date and incorporate the recommendations of the Review. Extending the Code before its sunset would then give the Government time to do this. A new regulation prescribing a new code will need to be made before then.

The purpose of the Code
Recommendation 3 was that a clear statement of purpose be set out in the Code outlining its purpose and objectives for franchisees and franchisors. Sensibly the review recommended the key facts sheet be merged into the disclosure document provided to franchisees, for easy accessibility of important and concise information.

Motor Vehicle Dealerships
Recommendation 4 was that service and repair work by motor vehicle dealerships be captured by the Code and the requirements that apply to new vehicle dealership agreements be extended to all franchise agreements. This would mean all franchise agreements would need to provide that franchisees get a reasonable return on their investment, and on early termination the franchisee would receive compensation. This would be a significant concern and risk to Franchisors to consider.

Dispute Resolution
Recommendation 18 provided the current legislation be altered to allow the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) to have the power to publicly name franchisors who fail to participate in ADR and incentivise franchisors to consider ADR rather than more expensive legal recourse to protect their brand name. Recommendation 19 was for the government to provide franchisees access to low-cost legal advice on their rights and prospects before ADR via the ASBFEO’s Tax Concierge Service to support small businesses and franchisees. Recommendation 21 suggested the government give franchisees the right to seek a ‘no adverse costs’ order when bringing a matter against a franchisor however ‘no adverse costs’ is not a common concept in Commonwealth legislation and unlikely to be adopted. The recommendations were aimed to support franchisees low-cost access to justice.

Building stronger relationships
The Review made recommendations to build stronger franchise relationships under recommendation 7 by streamlining requirements for entering into and renewing franchise agreements and simplifying disclosure obligations.

This would be a welcome step for Franchisors due to the up-front compliance costs.
The review provided the Code should provide further guidance on ‘good faith’ requirements, in recommendation 12 suggesting that franchisors should be encouraged to consult with franchisees regarding major changes to the business during the term of the agreement.

Implementation
The Federal government will implement short term changes to the Code and implement review of the Code every 5 years to ensure it is fit for purpose and keeping up with any industry changes and take steps will be taken to promote the use and visibility of the Franchise Disclosure Register.

Things may change significantly for franchisors over the next 12 months and we will update you.

Contact: Robert Toth | Special Counsel | Accredited Commercial Law and Franchise Specialist | [email protected] | mobile – 0412 67 37 57