Key Takeaway Points:
- On 9 October 2024, the Albanese Government released the exposure draft of the Competition and Consumer (Industry Code- Franchising) Regulations 2024 (the New Code).
- The New Code implements legislative changes outlined in the Government’s response to the Independent Review of the Competition and Consumer (Industry Codes-Franchising) Regulation 2014 (the Code) conducted in 2023 and is open to public consultation up until 29 October.
- The New Code is expected to commence on 1 April 2025.
The review
Although the Government agreed in principle with all 23 recommendations of the Independent Review, 13 of these are embodied in the New Code.
The New Code is to be formatted across three chapters of up to seven parts each and five divisions per part.
Licensing system
The New Code makes no reference of a system to license franchisors before they could commence offering franchises, however the Government’s published response to the review highlighted that such system may follow in the future.
Summary of key changes
Some of the key changes in the New Code are set out as follows:
- The requirement for a Key Facts Sheet is removed.
- There have been some updates to definitions, for example, existing franchisees who are renewing are considered as prospective franchisees.
- Master franchisors aren’t required to issue disclosure unless they themselves are a party to the agreement.
- The term “specific purpose fund” will replace “Marketing or Advertising fund” and will also cover funds for conferences and IT. It will require disclosure of any spending from the fund that benefits the franchisee’s specific business.
- A franchisee acquiring a second or subsequent franchises can opt out of disclosure if the new agreement is the same or substantially the same.
- Franchisors must disclose details of any proceedings or judgements against the franchisor.
- Minimum six-year record keeping rule requirement for documents received from franchisees under the Code.
- Civil penalties may apply for failing to discuss with franchisee any significant capital expenditure, refusing to terminate agreement when requested by the franchisee or failing to provide reasons for the refusal and failing to provide a breach notice with remedy directions and time-frame.
- The term of the franchise agreement must be consistent with the level of capital investment required so franchisees have a reasonable opportunity to get a return on investment, which has been extended to include all franchise relationships.
- Changes to the termination process for seven serious breaches outlined in the Code.
- The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can name and shame franchisors who do not participate in, or withdraw from the Alternative Dispute Resolution (ADR) process.
- Greater disclosure of the rationale, amount, timing, nature, outcomes, benefits and risks of any significant capital expenditure required.
- Noting that more of the provisions of the New Code will become penalty provisions, franchisors should also be aware of increased exposure to increased fines and penalties for non- compliance.
The Exposure Draft is not yet law and the Government is seeking industry feedback on the proposed legislation.
Please contact our Commerce, Franchising and Brands experts if you would like further information regarding the Exposure Draft or assistance in making a submission.
