There are changes on the horizon to the Franchising Code of Conduct following the Federal Government’s recent response to the independent review undertaken by Dr Michael Schaper last year.
Background
Because the Code contains a “sunset” provision, this means it will expire 10 years after it is made (on 1 April 2025), unless it is remade before then.
Having regard to the upcoming sunset date, the purpose of the independent review was to evaluate the effectiveness of the current regulatory environment and provide recommendations about how to ensure that it is meeting its intended objectives.
Dr Schaper released his report containing his findings in December last year and on 8 May the Government provided its response.
Response to recommendations
In its response Government has agreed, or agreed in principle, to all of the 23 recommendations and suggestions for implementing changes to and in relation to the Code.
Most importantly, the Government’s response means the Code will be remade before it expires. A clear statement will be added to the new Code in order to explain its purpose. For future reviews of the Code, the timing will change to every 5 years.
Some of the other main points of change on the horizon are as follows:
Disclosure obligations:
for prospective franchisees will be simplified by merging the Key Fact Sheet into the disclosure document; and
for renewing or extending an agreement with current franchisees will be simplified in recognition of the pre-existing relationships between the parties; and
through the Franchise Disclosure Register will be broadened to include additional information relating to dispute resolution and any adverse action brought by enforcement agencies.
The Government will work with the sector to simplify Code provisions relating to termination for serious breaches by franchisees;
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) will lead the development of various best practice guidelines and education:
to encourage franchisors to consult with franchisees regarding any major changes to the franchise business model;
to improve standards of conduct generally in franchising; and
to enhance the effectiveness of provisions relating to franchisee-initiated exit from the franchise network.
The Australian Competition and Consumer Commission (ACCC) will consider providing further guidance to franchisors on when a restraint of trade provision may constitute unfair contract terms;
Disputes and alternative dispute resolution:
The ASBFEO will be given the power to publicly name (and shame) franchisors who fail to participate meaningfully in alternative dispute resolution;
The ASBFEO’s Tax Concierge Service will be expanded to offer greater support to small businesses, particularly franchisees, to access low-cost legal advice on alternative dispute resolution prospects; and
The Government will consult further on whether franchisees should be able to seek a ‘no adverse costs’ order when bringing a matter against a franchisor for breach of the Code or the Australian Consumer Law (noting however that these types of orders are uncommon in Government legislation).
The ACCC will have implement a designated complaints function for small business representatives, to help better support the interests of franchisees;
The penalties under the Code for substantive obligations will be increased to 600 penalty units and infringement notices increased to 60 penalty units; and
Potential Licensing Regime:
A taskforce will be established to investigate the feasibility of “a licensing regime to better regulate most aspects of the franchisor-franchisee relationship”; and
Once a decision on licensing has been made, the Government will look at creating an online government resource on franchising (similar to ASIC’s ‘MoneySmart’ website), revisit enhancing the collection of data relating to the franchising sector, and look at ways to enhance the visibility and usage of the Franchise Disclosure Register.
A full list of the recommendations and the Government’s response, including additional changes relating to motor vehicle dealerships, can be found here.
If you have any questions about the Code, including these proposed changes, please let contact our franchising team.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.