Franchising Code Of Conduct 2025: Key Draft Changes And What They Mean For Your Small Business

Contents

What Is The Franchising Code Of Conduct?

The Franchising Code of Conduct regulates how franchises are established and operated in Australia. Its primary purpose is to ensure fair practices between franchisors and franchisees, addressing the inherent power imbalance where franchisees are often in a more vulnerable position. The Code’s regulations aim to create a more level playing field, protecting franchisees from exploitation and ensuring both parties operate within a framework of transparency and fairness.

Why Are Changes Being Proposed In 2025?

For laws to remain effective and serve their purpose, they must adapt to reflect shifts within the industry. The 2025 updates to the Franchising Code of Conduct aim to ensure the code is evolving, aligning it with the changing needs of the industry. Following an independent review, Treasury released the Exposure Draft in October 2024, followed by an opportunity for feedback. This feedback period has now ended, and a new code has been released, set for adoption on 1 April 2025.

The updated code focuses on promoting greater transparency and fairness within the franchising process through the introduction of new rules and regulations. It is important to note that the new code will apply to Franchise Agreements entered into on or after 1 April 2025. Additionally, there will be a grace period until 1 November 2025 for franchisors to comply with some of the new requirements. This phased implementation is designed to give businesses sufficient time to adapt to the changes.

Key Draft Changes To The Franchising Code of Conduct

The proposed changes address several important areas related to franchising. It’s important to note that these are currently proposed amendments, meaning they are subject to change as the Exposure Draft undergoes review. Below, we’ve outlined 10 key changes that are most relevant to your small business — let’s explore them in detail.

1. Structuring And Statement Of Purpose

The Code’s statement of purpose will be rewritten to provide a more explicit and clearly defined standard for its objectives. Alongside these clarified goals, the new Franchising Code of Conduct will be integrated as a dedicated chapter within the broader regulatory framework. This structural shift means the Code will no longer exist as a standalone document but will instead align more closely with related laws and standards, fostering consistency across the applicable regulations.

2. Opportunity To Achieve Investment Return

The changes to the Code impose an obligation on franchisors to ensure their franchise agreements provide franchisees with a reasonable opportunity to secure a return on their investment. This regulation is designed to protect franchisees from entering agreements where the terms are overwhelmingly disadvantageous. However, this does not mean franchisors are responsible for guaranteeing the success or profitability of a franchisee’s business. The risks associated with running a business remain with the franchisee. Nevertheless, the franchise agreement must be fair and reasonable toward the franchisee, and determining whether this obligation has been met will ultimately be a matter for the courts to assess on a case-by-case basis.

3. Compensation For Early Termination

Under the changes, all franchisors will be required to compensate franchisees in certain situations if the franchise agreement ends early. Previously, this obligation only applied to new vehicle dealerships, but the proposed changes extend it to all franchise businesses.

So, when will compensation be required?

Franchisors must provide compensation in specific circumstances, such as:

The franchisor decides to exit the Australian market.
The franchisor restructures or reduces its network in Australia.
The franchisor changes its business model, such as altering how products or services are distributed.

What should the franchise agreement include?

The franchise agreement must clearly outline how compensation will be calculated. Key factors include:

Lost profits the franchisee would have earned.
Costs of equipment or facilities the franchisee was required to invest in.
Loss of opportunity to sell an established business.
Winding-up costs, such as those involved in shutting down the business.

4. Simplified Pre-Entry Disclosure

Under the new Code, franchisors and franchisees will have one less document to review, as the Key Facts Sheet will be discontinued. Franchisors will no longer be obligated to provide this separate document. Instead, the information typically found in the Key Facts Sheet will be integrated into the disclosure document. This change addresses the issue of duplicate information and reduces unnecessary documentation while still ensuring that all required information is provided to franchisees in a streamlined format.

5. Less Documentation For Renewing Existing Franchises

The new Code aims to reduce the burden of excessive and often unnecessary documentation by simplifying the process for renewing franchise agreements.

Under the new rules, franchisors will no longer need to provide the same detailed disclosure documents required for new franchisees when renewing or extending agreements with existing franchisees. This change simplifies the disclosure requirements, easing compliance burdens and making the renewal process more efficient.

6. Tougher Penalties

The new rules will introduce tougher penalties for breaching the Franchising Code of Conduct. According to the Code, there has been an increase in both the types of violations that attract penalties and the number of penalty units a business can be fined.

For most breaches, the maximum penalty has doubled, increasing from 300 penalty units ($66,600) to 600 penalty units ($133,200). While the specific rules for when fines apply may vary, penalties generally target breaches such as:

Failing to act in good faith.
Violating the terms of a franchise agreement.
Restricting or undermining a franchisee’s rights.

The changes also introduce higher penalties for serious breaches, particularly for corporations.

Higher Tier Penalties:

For corporations, the maximum penalty is the greater of $10 million, or
Three times the value of the benefit obtained from the breach, or
10% of the annual turnover in the preceding 12 months, if the benefit cannot be determined.
For individuals, the penalty can be up to $500,000 per contravention.

7. Powers To Name Non-Compliant Franchisors

The new rules will grant the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) the authority to publicly name franchisors who fail to meaningfully participate in alternative dispute resolution processes. This measure is intended to promote accountability and transparency, enabling potential franchisees to make more informed decisions about the franchises they consider working with. By publicly highlighting the actions of franchisors, it holds them accountable and encourages adherence to fair dispute resolution practices.

8. Clarification On Service And Repair Work

The new Code clarifies that the Franchising Code of Conduct will now apply to service and repair work provided by motor vehicle dealership franchises. This change promotes consistency, aligning the Code with existing industry practices, as dealerships are already expected to offer these services. However, the Code will not apply to standalone service and repair businesses— it only covers those franchises involved in the sale of motor vehicles.

9. Specific Purpose Funds

The proposed changes to the Code introduce a new term, “specific purpose funds,” which combines what were previously called marketing funds and cooperative funds into a single category. This change eliminates unnecessary distinctions between the two and broadens the scope of what is covered.

Now, any money collected from franchisees for a specific, common purpose, such as marketing campaigns, platform upgrades, or conference fees, will fall under the definition of specific purpose funds. These funds will be subject to the same strict reporting and auditing requirements previously applied only to marketing funds.

Franchisors must:

Maintain separate accounts for specific purpose funds.
Document and report all expenses related to these funds.
Ensure transparency by providing detailed records to franchisees about how their contributions are used.

This change aims to improve accountability and ensure franchisees are fully informed about the management and use of their contributions.

10. Reasonable Legal Costs

The update to the Code also considers legal costs for franchisees. The updates will place an obligation on franchisors to ensure that any legal costs charged to franchisees are reasonable and reflect market rates. These costs must also be transparently itemised and clearly stated in the franchise agreement as well as any other relevant documentation. Additionally, the new rules introduce record-keeping obligations, requiring franchisors to retain any written information provided by franchisees or prospective franchisees for six years.

How Will The 2025 Changes Impact My Small Business?

These updates to the Franchising Code of Conduct will require your business to enhance its compliance measures. It’s essential to ensure that your documents, systems, and processes are aligned with the new changes. Taking action now, rather than delaying, will help you avoid potential issues down the line.

As noted above, the penalties for non-compliance have become stricter, so staying on top of your obligations is critical. By integrating these compliance measures into your business operations sooner rather than later, you can ensure your business remains fully compliant with the updated Code and avoid unnecessary risks.

What Steps Should I Take Now?

Now is the ideal time to review your key documents, such as your Franchise Agreement, to ensure they align with the upcoming changes to the Franchising Code of Conduct. Consulting a legal expert in franchising is a proactive step that can save you time and stress. Our experts can provide tailored advice to help you identify the necessary actions to ensure full compliance with the updated Code and protect your business interests.

For franchisors, it is especially important to understand how the new Code will affect existing franchise relationships to avoid any confusion. Section 97 of the new Code clarifies that the updated rules will apply to all franchise agreements entered into, transferred, renewed, or extended, and conduct engaged in on or after 1 April 2025. However, there is an important exception: the new rules concerning compensation for early termination and a reasonable opportunity for return on investment will not apply to agreements entered into, transferred, renewed, or extended before 1 November 2025.

Our legal experts are ready to assist — get in touch with our team today to ensure your business is prepared for these changes!

Key Takeaways

The 2025 changes to the Franchising Code of Conduct introduce important updates for small businesses — ensure you stay ahead and compliant. To summarise what we’ve discussed:

The 2025 updates to the Franchising Code of Conduct aim to enhance fairness, transparency, and compliance, focusing on franchisor-franchisee relationships and addressing existing power imbalances.
Franchisors will now be required to ensure franchise agreements offer a reasonable opportunity for franchisees to secure a return on investment and compensate franchisees under certain conditions for early termination.
Documentation requirements will be simplified for both pre-entry disclosure and franchise agreement renewals, reducing the administrative burden for businesses.
The penalties for non-compliance have significantly increased, including tougher financial penalties and public naming of non-compliant franchisors to encourage accountability.
New obligations include maintaining transparency in the use of “specific purpose funds” (e.g., marketing or platform upgrades) and ensuring legal costs charged to franchisees are reasonable and clearly documented.
The updated Code clarifies its application to motor vehicle dealership franchises and introduces phased implementation timelines, giving businesses time to adapt.
Franchisors and franchisees are encouraged to review and align their documents, systems, and processes with the new Code before the 1 April 2025 start date to ensure compliance and avoid penalties.

If you would like a consultation on the franchising code of conduct changes, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

Sapna Goundan

Sapna has completed a Bachelor of Arts/Laws. Since graduating, she's worked primarily in the field of legal research and writing, and she now writes for Sprintlaw.

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