Recently the Federal Government released their final amendments to the Competition and Consumer (Industry Codes – Franchising) Amendment (Fairness in Franchising) Regulations 2021 (“the Franchising Code”). These amendments significantly reformed the Franchising Code to improve its fairness and transparency and promote competition and fair trading within the franchising sector.
The effect of these amendments is to level the playing field, by placing stricter obligations on franchisors in their dealings with franchisees.
The key changes to the Franchising Code include:
Dispute resolution and complaints reforms
The previous requirement for disputes between franchisees and franchisors to be mediated is replaced with a requirement for Alternative Dispute Resolution (“ADR”) processes, providing a wider variety of resolution mechanisms to resolve a dispute.
The reforms also allow two or more franchisees with similar disputes with the same franchisor to refer their disputes to a single ADR process to resolve their disputes jointly. The franchisor is obliged to attend such a process.
These dispute resolution reforms came into effect on 2 June 2021.
Increased disclosure requirements
Amendments to disclosure obligations prior to a franchisee entering into a franchise agreement require the franchisor to provide a new ‘key facts sheet’. This amendment does not introduce any new disclosure requirements, rather it requires that the franchisor highlights, on the key facts sheet, any crucial information that the franchisor is already required to disclose.
The amendments require the Franchisor to specifically disclose any financial benefit or rebate that they receive from a supplier, including:
- Details of the amount of rebates as a percentage of the total purchases from that supplier; and
- Whether it will be distributed to the franchisee and how much will be shared.
Further, the Franchisor is required to disclose any lease arrangements and interests that they hold in a lease where the premises is to be subleased to the Franchisee.
These amendments came into effect on 1 July 2021.
New early exit and termination provisions for franchisees
The amendments allow Franchisees to explicitly request early termination of their franchise agreement at any time. If the Franchisee does this, the Franchisor must provide a substantive response to the request within 28 days.
The reforms also extend the cooling off period to 14 days, and the cooling off period will now commence when the Franchisee has received all the necessary documentation, including retail leases.
These amendments to the termination provisions commenced on 1 July 2021.
New obligations on franchisors when passing on their legal costs to franchisees.
The amendments prevent Franchisor’s from contractually passing on future legal costs to the Franchisee where those costs are unknown at the time of entering into the Franchise Agreement.
New restriction on restraint of trade provisions
The amendments to the Franchise Code ensure that a restraint of trade provision on a Franchisee may only be enforced where there has been a serious breach of a Franchise Agreement by that Franchisee.