On 15 April 2022, compliance with the Franchising Code of Conduct (Code) will become even more critical for franchisors.
This is because from that date:
The ACCC has also expressly stated that compliance with the Code will be one of its enforcement priorities for 2022.
The maximum penalty for breaches of the following obligations under the Code will be: (for companies) the greater of $10,000,000, three times the value of the benefit or 10% of relevant annual turnover for companies; and (for individuals) $500,000:
Obligation
Description
1
Disclosure
Obligation of franchisors to disclose materially relevant facts to prospective franchisees before entering into a franchise agreement or within a reasonable time after the franchisor becomes aware of them.
2
Freedom to associate
Obligation of franchisors to not restrict or impair a franchisee or prospective franchisee from forming an association or associate with other franchisees for a lawful purpose.
3
New vehicle dealership agreements
Requirement for new vehicle dealership agreements to provide compensation to franchisees for early termination under certain circumstances.
Requirement for franchisors to not enter into a new vehicle dealership agreement unless the agreement provides the franchisee with a reasonable opportunity to make a return on investment during the period of the agreement.
The maximum penalty for breaches of the following obligations under the Code will be doubled – 300 penalty units to 600 penalty units ($133,200):
4
Good faith
Obligations on parties to a franchising agreement to act in good faith.
5
Disclosure before entering agreement
Obligation of the franchisor to provide disclosure documentation before entering a franchise agreement.
6
Disclosure when entering agreement
Disclosure obligations of franchisors when entering into a franchise agreement.
7
Disclosure document on request
Obligation of franchisor to provide a copy of the disclosure document upon request by the franchisee.
8
Notification and record-keeping
Notification and record-keeping obligations of the franchisor for end of term arrangements.
9
Termination
Obligations in relation to termination of a franchise agreement.
10
Notice before termination
Obligation of franchisor to provide reasonable written notice before terminating a franchise agreement, where franchisee has not breached the agreement.
11
Marketing fund and non-disclosure of former franchisee’s details
Obligations surrounding franchise agreements requiring the franchisee to pay money into a marketing fund.
Obligations surrounding the non-disclosure of a former franchisee’s details.
12
ADR and arbitration
Obligations of each party to a dispute to attend the ADR process and, if agreed to escalate to arbitration, to attend any arbitration.
13
Notification and end-of-term
Obligations of the franchisor relating to notification at the end of term of a franchise agreement.
New maximum penalties of 600 penalty units ($133,200) for breaches of the following obligations under the Code will be introduced:
14
Limit good faith obligation
Obligation on franchisors to not enter into a franchise agreement that limits the obligation to act in good faith, including by applying, adopting or incorporating the words of another document.
15
Information statement
Obligation of franchisors to provide a copy of the Information Statement to a prospective franchisee within a reasonable time, before formal disclosure of more detailed documents.
16
Financial statement for marketing funds
The fund administrator must provide the franchisee a copy of the financial statement for marketing funds and other cooperative funds administered by or for the franchisor or master franchisor within 30 days.
17
Cost of settling disputes
Obligation of franchisors to not enter into franchise agreements that require the franchisee to pay for the costs of settling any disputes.
18
Transfer
Obligation of franchisors to not unreasonably withhold or revoke consent to the transfer of a franchise Agreement.
19
No termination if breach remedied
Obligation of franchisors to not terminate a franchise agreement where the franchisee has remedied their breach of the agreement.
20
Notice for termination
Obligation of franchisors to not terminate franchise agreements without providing 7 days’ notice and the reason for the termination.
21
Significant capital expenditure
A franchisee does not have to undertake significant capital expenditure in relation to their franchise business.
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