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Enhancing the Franchise Landscape in Australia: A look at the recommendations from the Review of the Franchising Code of Conduct

1 min read

14 Feb 2024

The final review of the Franchising Code of Conduct conducted by Dr Schafer has been released by Treasury. Franchising, which significantly contributes to the Australian economy with 1,144 franchise systems, over 70,000 franchisees, and employing more than half a million people has been well scrutinised over the last few years.A recent comprehensive review has 23 recommendations aimed at refining the regulatory framework governing this sector.

The review scrutinised the Franchising Code of Conduct’s effectiveness in fostering a robust, fair, and competitive environment for both franchisors and franchisees.

The Role of Franchising in Australia

The review identified that franchising stands as a cornerstone of the Australian business landscape. Despite its significant contributions, the sector has faced challenges in maintaining pace with the broader business population’s growth rate. This discrepancy underscores the necessity for a more nuanced understanding and enhanced regulatory measures to sustain and bolster the sector’s development.

Key Findings and Strategic Recommendations

The review highlighted several areas for improvement and put forth 23 recommendations designed to address these concerns effectively. Below is a summary of the recommendations:

About the franchising sector

  1. The Australian Government should ensure the provision of more comprehensive, robust statistics about the franchising sector.

Scope and structure of the Code

  1. The Code should be remade, largely in its current format.
  2. A clear statement of purpose should be inserted into the Code.
  3. Service and repair work conducted by motor vehicle dealerships should be explicitly captured by the Code.
  4. Reviews of the Code should be conducted in five yearly cycles in the future.

Entering into the franchise agreement

  1. Simplify and consolidate the pre-entry information given to prospective franchisees.
  2. Franchisor obligations under the Code in relation to existing franchisees should be simplified.
  3. The existing requirement that new vehicle dealership agreements must provide a reasonable opportunity to make a return on investment should be extended to all franchise agreements.
  4. The existing requirement that new vehicle dealership agreements must include provisions for compensation for franchisees in the event of early termination should be extended to all franchise agreements.
  5. Enhance the public visibility and usage of the Franchise Disclosure Register (FDR).
  6. Additional information should be included on the FDR relating to dispute resolution and adverse actions brought by enforcement agencies.

During a franchise relationship

  1. Franchise systems should be encouraged, through education, to consult franchisees regarding any major change to the business model during the term of the franchise agreement.

Ending a Franchise relationship

  1. Provisions relating to termination for serious breaches should be simplified. Changes made in 2021 relating to termination under clause 29 of the Code should be revisited.
  2. Best practice guidance should be provided to franchisees and franchisors regarding franchisee initiated exit, to enhance the effectiveness of clause 26B of the Code.
  3. Further work should be done to limit the use of unreasonable restraints of trade in franchise agreements.

Regulatory oversight and dispute resolution

  1. A comprehensive online government resource should be created, in the nature of ASIC’s MoneySmart website (‘FranchiseSmart website’).
  2. Australian Government agencies should work with relevant sector participants to improve standards of conduct in franchising by developing best practice guidance and education.
  3. ASBFEO should be given additional powers to name franchisors who have not participated meaningfully in alternative dispute resolution.
  4. The Australian Government should assist franchisees to access low-cost legal advice on prospects prior to formal ADR.
  5. The Australian Government should consider an appropriate role for franchise interests when implementing its commitment to a designated complaints function for the ACCC.
  6. 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.
  7. The scope of penalties under the Code and associated investigation powers and the infringement notice regime in Part IVB of the CCA should be increased.
  8. The Australian Government should investigate the feasibility of introducing a licensing regime to better regulate most aspects of the franchisee / franchisor relationship.

These recommendations aim to fortify the franchising sector by enhancing transparency, fairness, and mutual understanding between franchisors and franchisees.

Trends impacting the franchise sector

As the review noted, there are trends impacting the franchise sector, with one disruptor being the gig economy with platforms such as Airtasker and Uber making it easier, cheaper and faster for individuals to offer services direct to consumers.

There are also direct to consumer models taking out the need for retailers and new agency models where agencies operate under a brand but with more autonomy. The report suggested that territories may be under pressure with a shift to online or ecommerce.

These are all important considerations for existing franchisees and franchisors as well as anyone considering buying starting a franchise. The full review can be viewed here on the treasury website.

Understanding franchising compliance

The Franchising Code of Conduct continues to serve as a robust foundation for this crucial part of Australia’s business landscape. Understanding how the Code works and the rights and obligations for franchisors and franchisees specified within it are critically important to avoiding compliance issues and disputes.

At PCL Lawyers we assist clients within the franchising industry with concise and commercially sound legal advice. Contact our team if you have any questions about franchising.

Disclaimer: This article has been prepared for general information purposes and may not apply to your situation. This information should not be relied upon for legal, tax or accounting advice. Your individual circumstances will alter any legal advice given. The views expressed may not reflect the opinions, views or values of PCL Lawyers and belong solely to the author of the content. © PCL Lawyers Pty Ltd.

If you require legal advice specific to your situation please speak to one of our team members today.

About The Author - Chris Karatselios

Chris is an Accredited Commercial Law Specialist and a Partner at PCL Lawyers. Chris has approximately 30 years’ experience in commercial and property law. Chris has extensive expertise in complex...

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