Franchise Code of Conduct: Compliance for Australian Franchise Businesses

Franchising offers an appealing pathway to business ownership in Australia. With the backing of an established brand, proven business model, and ongoing support, franchisees can hit the ground running in their chosen industry. However, with these advantages comes a unique set of legal obligations - especially when it comes to complying with the franchise code of conduct.

Whether you’re looking to buy into a franchise or thinking about franchising your own business, understanding the franchising code is absolutely essential. Making sense of all the requirements in the Franchising Code of Conduct can feel overwhelming at first, but with the right guidance, you can confidently navigate this landscape and set your franchise up for long-term compliance and success.

In this guide, we’ll break down what the franchising code means for Australian franchise businesses, what compliance looks like day-to-day, and which legal steps you should take to protect your business. Keep reading to learn how to do it the right way - and remember, we’re here to help you every step of the way.

What Is the Franchising Code of Conduct?

The Franchising Code of Conduct is a mandatory industry code under Australian law that regulates the relationship between franchisors and franchisees. It’s designed to promote transparency, fairness, and informed decision-making by setting out what information franchisors must provide, how disputes are handled, and the rights and obligations of both parties.

The code is formally known as the Franchising Code of Conduct (found in the Competition and Consumer (Industry Codes - Franchising) Regulation 2014), and is legally enforceable by the Australian Competition and Consumer Commission (ACCC). Non-compliance can lead to hefty penalties and even legal action, so it’s critical for both franchisors and franchisees to understand and stick to the rules.

The code is updated from time to time, most recently with changes that strengthen franchisee protections and clarify the obligations of franchisors. It’s important to stay up to date, as your compliance obligations may evolve.

Why Does Franchise Compliance Matter?

Adhering to the franchising code of conduct isn’t just about ticking a box. It offers key benefits for all parties:

• Reduces Risk: Compliant franchises are less likely to face complaints, disputes, or regulatory penalties.
• Builds Trust: Franchisees are more likely to succeed when franchisors are transparent and supportive - exactly what the code aims to encourage.
• Promotes Longevity: A well-run franchise system that is fair and transparent is more likely to grow, attract new franchisees, and maintain its brand reputation.
• Avoids Costly Legal Disputes: Many franchise disagreements can be resolved - or avoided entirely - by following the dispute resolution pathways set out by the code.

Put simply: strong code compliance is essential for a sustainable, reputable franchise business in Australia.

Who Does the Franchising Code Apply To?

The code applies to all franchise agreements entered into, renewed, or extended on or after 1 July 2015. If you operate under a franchise model - meaning you licence others to operate using your brand, systems, and intellectual property - it’s very likely that the code applies to you.

Even if you don’t call your arrangement a “franchise,” the ACCC will use the code’s definition to determine whether your business falls under its scope. Many business owners are surprised to learn they are accidentally franchising - which can create unintended legal problems if you’re not prepared.

In summary, you need to comply with the franchising code if:

• You’re granting someone else the right to operate using your brand and system in return for payment; or
• You’re entering into, renewing, or extending a franchise agreement in Australia.

If you’re not sure whether you fit the definition, speak to a legal expert on franchising for advice, as accidental non-compliance is risky.

What Are My Obligations Under the Franchising Code?

The code sets out detailed obligations for both franchisors and franchisees. Here are some of the key requirements:

1. Disclosure Requirements

Franchisors must provide prospective franchisees with a comprehensive Disclosure Document (in the prescribed format) before entering into, renewing, or extending a franchise agreement. This document must include information about the business, fees, financial performance, dispute history, cooling-off rights, and much more.

Changes in 2022 have introduced the Franchise Disclosure Register, which requires franchisors to publicly disclose key details to further promote transparency in the industry.

2. Franchise Agreement Terms

The code regulates what must and must not be included in your franchise agreement. For example, there are rules around cooling-off rights, termination, marketing fund contributions, and dispute resolution procedures. Franchise agreements should also be reviewed regularly to ensure they remain compliant with the latest franchising code legislation.

For more on what should be included, see our guide on franchise agreements.

3. Good Faith Requirement

Both franchisors and franchisees must act in good faith during all aspects of the franchise relationship. This means being honest, cooperative, and constructive - even in tough negotiations or disputes.

4. Marketing Fund Rules

If a franchisor collects marketing or advertising fees from franchisees, there are specific requirements for how those funds may be spent and how records must be kept and disclosed to franchisees.

5. Dispute Resolution Processes

The code requires all franchise systems to have a clear, accessible dispute resolution process (including mediation mechanisms). This process must be followed if disagreements arise between franchisees and the franchisor.

6. Update and Record-Keeping Obligations

Franchisors are required to update their disclosure documents regularly and keep financial and business records that support transparent operations.

7. Cooling Off Period

New franchisees must be given a minimum cooling off period (currently 14 days) after entering into a franchise agreement, during which they can change their mind and walk away from the deal.

How Do I Set Up a Franchise for Compliance?

Launching a franchise isn’t just about scaling your business - it’s about building a foundation that complies with the law from day one. Here’s how you can get started:

1. Develop a Franchise Business Plan

• Identify your target market, competition, and business objectives.
• Map out your proposed franchise system: locations, products or services, and brand experience.
• Think through the resources you’ll need and potential challenges. Planning will set you up for legal compliance and operational success.

2. Choose the Right Business Structure

• Sole Trader: Simple for small operations, but with limited personal asset protection.
• Company: Offers limited liability, which means your personal assets are more protected if things go wrong. Most franchises opt for a company structure.
• Other Structures: Partnerships or trusts may have a place, depending on your circumstances, but are less common for franchisors.

For help weighing up your options, see our guide on Sole Trader vs Company.

3. Register Your Business and Trademarks

• Register your business name and obtain an Australian Business Number (ABN).
• Set up your company structure via ASIC if required (step-by-step guide).
• Protect your brand and logos by registering your trademarks, which is crucial for any franchise. Learn more about protecting your IP as a franchise.

4. Prepare Franchise Agreements and Legal Documents

You’ll need a suite of legally precise documents tailored to franchising and complying with the code, including:

• Franchise Agreement: Sets out the terms of the relationship and rights and obligations under the code.
• Disclosure Document: As required by the code - must be updated annually or as soon as any material change occurs.
• Operations Manual: Not mandatory under the code but highly recommended, as it provides franchisees with the procedures and standards they must follow.
• Confidentiality Agreements: Protects sensitive business information and trade secrets shared with franchisees.
• Employment Agreements: If you or your franchisees will hire staff, proper employment contracts and workplace policies are essential.

It’s a good idea to work with an experienced franchise lawyer who can ensure your documents reflect the latest franchising code legislation.

5. Ensure Ongoing Compliance and Training

• Regularly review and update disclosure and franchise documents as legal obligations change.
• Keep detailed records - especially for marketing funds and dispute resolution procedures.
• Train your franchise team on compliance requirements and ethical business practices. This can include providing a Franchising Code of Conduct Compliance Manual or regular refresher sessions.

6. Register on the Franchise Disclosure Register

• As of November 2022, franchisors must register key information about their business system on the public Franchise Disclosure Register. Failure to do so can result in significant penalties.
• The register supports better transparency and allows potential franchisees to research your franchise offering before signing up.

What Legal Documents Do I Need for My Franchise?

Every franchise system is unique, but most will need the following core legal documents to achieve and retain compliance with the franchising code:

• Franchise Agreement: Outlines the rights, duties, renewal options, fees, territory, intellectual property use, and dispute resolution processes. It must meet all code requirements.
• Disclosure Document: Provides prospective franchisees with regulated information to make an informed decision, as prescribed by the code.
• Marketing Fund Policy: If you operate a marketing/advertising fund, specify how funds will be managed, spent, and reported to franchisees.
• Operations Manual: Guides franchisees on daily business practices and standards.
• Employment Contracts (for staff): Documents the relationship with employees and sets workplace policies.
• Supply/Distribution Agreements: Where relevant, outlines the relationship with suppliers or distributors for products/services.
• Confidentiality or Non-Disclosure Agreements (NDAs): Protects sensitive business information throughout the franchise relationship.

Remember, off-the-shelf or “generic” documents generally won’t cut it for franchise compliance - they need to meet the requirements of the law and reflect your brand and system’s needs. If in doubt, get your documents reviewed by a franchise lawyer.

Staying Compliant: Tips for Long-Term Success

Ongoing compliance with the franchising code is a continuous process - here are practical ways to stay on track:

• Regularly Review Changes: The code and related laws change from time to time. Monitor updates or subscribe to legal updates to stay informed.
• Annual Disclosure: Update your Disclosure Document every year and whenever material changes occur.
• Training: Provide regular training to franchisees on both operations and code compliance.
• Record Keeping: Keep organised records of fees, marketing fund expenditure, franchisee lists, and dispute outcomes.
• Respond Promptly to Concerns: Act quickly and transparently if a franchisee or the ACCC raises an issue. Early, honest dialogue helps resolve most problems before they escalate.
• Seek Legal Guidance: Don’t try to DIY your way through complex issues. Franchise law is technical - and the risks of getting it wrong are high. A short chat with a legal expert can save you considerable stress and cost down the track.

Common Pitfalls: How Franchisors Can Get Caught Out

Compliance is non-negotiable, but many franchisors (and franchisees) still trip up. Common missteps include:

• Failing to provide proper or up-to-date disclosure documents before signing new franchisees
• Not recording and reporting on use of marketing fund monies as required
• Missing cool-off requirements or unfairly restricting franchisee rights to exit
• Unintentionally breaching the good faith obligation (for example, by withholding crucial information or acting unreasonably in negotiations)
• Using outdated agreements that don’t reflect recent changes to the code

If you’re unsure whether your business is compliant, consider a compliance health check or a legal review.

Should I Franchise My Business? (Optional Considerations)

Franchising isn’t the only path to growth, but it can be highly effective if you’re ready for the legal and operational commitment. Factors to weigh include:

• The strength and uniqueness of your business model
• Brand recognition and value proposition
• Resource commitments (legal, financial, training)
• Your appetite for compliance management
• Your willingness to support and oversee franchisees nationwide

For more help exploring whether franchising is right for you, check out our complete guide to franchising in Australia.

Key Takeaways

• The Franchising Code of Conduct is a legally enforced rulebook for all Australian franchises - it covers everything from information disclosure, good faith behaviour, dispute resolution, and marketing fund management.
• Franchise compliance is critical for legal protection, brand integrity, and trust between franchisors and franchisees.
• You’ll need tailored legal documents, ongoing training, and regular reviews of your business systems to stay compliant with the franchising code of conduct legislation.
• Both franchisors and franchisees need to understand their rights and responsibilities under the code and make compliance a daily practice, not a one-off obligation.
• Legal advice is invaluable for setting up, maintaining, and growing your franchise - the risks of non-compliance are too high to leave to chance.
• Keep ahead of code changes by subscribing to updates and working with lawyers who specialise in franchising law.

If you would like a consultation on franchise code of conduct compliance or starting a franchise business in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.