Changes to the Franchising Code of Conduct (the Code) mean franchises will need to make immediate adjustments in order to comply. The main alterations include:
- Uploading the franchise disclosure document online
- Heavier fines for a breach of the code
- Stricter time limit on providing the franchise information statement
The amendments have been made in an effort to promote greater transparency in business. The Code of Conduct operates to protect both franchisors and franchisees. However, as franchisees tend to have lesser bargaining power in the franchise relationship, much of the regulations have been amended to ensure fairness towards them.
If you are a franchisor, keep reading to find out what the changes will mean for your business.
What Is The Franchising Code Of Conduct?
The Code is essentially a set of rules that determines ways in which franchise businesses will operate. It applies to all franchises in Australia, governing how the relationship is conducted before, during and even after the dissolution of a Franchise Agreement.
The Code is governed by the Australian Competition and Consumer Commission (ACCC).
What Are The New Changes To The Code?
Whether you’re a franchisor or franchisee, it’s important to keep up to date with updates to the Code. The following are the main changes being made.
Franchisors Need To Upload Their Disclosure Document
The new changes compel franchisors to upload their disclosure statement online.
A franchise disclosure document is an internal document that each franchise needs to have. The document usually includes information such as financial details, any legal action the business is, or previously been involved in, operating costs, fees and payments, contact details as well as information on what happens when the agreement comes to an end.
It’s particularly useful during the process of selling a franchise or buying into a franchise, as it provides the potential franchisee with all the relevant information to make an informed decision.
With the new changes in place, all disclosure documents now need to be uploaded online prior to 14th November 2022. The document can be uploaded online on the Franchise Disclosure Register. The process requires a MyGov account and the creation of a franchise profile if you do not already have one.
Prior to uploading the document, it’s important to make sure all the details are up to date. We recommend getting this done at least once every financial year with the help of a legal professional. If you would like to discuss making changes to your current disclosure agreement, talk to one of our legal consultants today.
When Do I Need To Provide The Information Statement?
Another key update is the timeframe within which an information sheet should be provided.
There is a standard Information Statement For Prospective Franchisees that needs to be handed out to anyone that expresses interest in a franchise. It’s the franchisor’s job to provide this statement to the franchisee as soon as they express interest and prior to giving them any other documents.
As of the 15th of April 2022, the information statement needs to be given within 7 days of interest being shown.
The information statement is a four page summary regarding the key considerations about purchasing a franchise. It covers matters such as:
- Franchisee rights
- Dispute Resolution
- Cooling off Period
If you are a potential franchisee, it’s important to ensure that the franchisor of the business you are interested in has provided this information to you in a timely manner. This can be a clear indicator on whether or not this business adheres to the guidelines provided in the Code.
What Are Some Of The Penalties For Breaching The Code?
Heavy financial penalties are imposed for businesses that breach the Code. Fines up to $133,200 can apply however, they can be more for breaches that involve:
- Restricting franchisees or potential franchisees in their associations
- Vehicle dealership agreements
- Not disclosing material facts that are of relevance
The severity of the fine will also depend on the entity being prosecuted. Individuals will have fines up to $500,000 whereas a corporation’s fines can be up to $10 million or three times the value of the benefit.
If the court cannot calculate the benefit, then the fine will consist of 10% of annual turnovers in the next 12 months.
Good Faith Requirements
The Code also expects all parties to act in good faith. Therefore, even if something is not explicitly listed in the Code as unlawful but acting in such a way will cause the other party grief, that action should always be avoided.
For example, you are franchising a business that sells popular pomegranate desserts and have a potential franchisee approach you. They wish to open a franchise of your business in their hometown, however, you are aware that pomegranates are not readily available in that part of the country and the franchisee prospect will have significant additional costs importing it to consider.
The obligation to act in good faith would see the franchisor disclose this information to the franchisee in the very early stages. This way, the franchisee can make an informed decision about their purchase.
With this in mind, it’s also worth noting consumer laws still apply, particularly misleading and deceptive conduct (as this falls under the Australian Consumer Law). As a franchisor, it’s recommended that you avoid presenting information that is likely to mislead or deceive potential franchisees about your business leading up to the purchase.
What Else Should I Know?
As mentioned previously, the ACCC is the regulatory body that governs the Code. They have the authority to conduct compliance checks on franchises to ensure they are keeping all the relevant documentation.
In addition to this, the Code was previously updated in 2021. As a result, there have been a number of changes in a short span of time.
We’ve covered some of the main and most recent ones in this article, however, it is advisable to seek the help of a legal professional to make sure your business venture isn’t missing anything crucial that could lead to being penalised by the ACCC.
At Sprintlaw, we’ve helped a number of businesses set up a franchise and sort out their franchise documents. If you’re interested in learning more about franchise-related legal topics, you may want to read through our other articles on other legal issues that could arise in a franchise arrangement:
- Selling A Franchise
- What To Do At The End Of A Franchise
- Legal Documents You Need For Franchising
- Franchise Agreements
- What Fees The Franchisee Has To Pay
- Terminating A Franchise Agreement
- What To Do With A Bad Franchisee
- Franchisees’ Legal Obligations
- What Are Franchising Royalties?
- Franchise Grant Process
Recent changes to the Code will mean many businesses will need to ensure their internal documents are up to date and they are compliant with the new regulations. Primarily, it’s important to:
- Upload your franchise disclosure document online
- Have the information statement ready for any potential interest in your franchise
If you have any legal questions around the Code or need assistance with your franchise, our expert lawyers are ready and available to answer any queries moving forward. Reach out to our legal consultants at 1800 730 617 or firstname.lastname@example.org for a free, no-obligations chat.
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