2020 has been a year in which we have seen the introduction of several new legislation together with amendments to existing ones. Towards the end of 2020, the Australian Government released an exposure draft where it proposes changes to the Franchising Code of Conduct. This comes in wake of the Fairness in Franchising Report and is the Government’s response to the Report.
What does this mean for Franchisees and Franchisors?
The proposed changes aim to increase the disclosure requirements from franchisors while also improving the rights of franchisees to “balance” the rights of the parties.
What are some of the key changes proposed?
- Changes to dispute resolution with new conciliation and voluntary binding arbitration provisions making dispute resolution a more affordable option for the franchising sector, while also delegating the franchising dispute resolution advisor functions to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
- Requirement to provide a ‘Key Fact Sheet’ that will highlight the most critical information contained in the disclosure document.
- The disclosure of significant capital expenditure, rebate arrangements, arbitration of disputes, early termination of franchise agreements, rights relating to goodwill, earnings information, and further disclosure of lease information.
- Increasing the cooling off period from seven (7) to fourteen (14) days.
- Restriction on Franchisors requiring franchisees to pay legal costs of the franchisor preparing the franchise agreement and ancillary documents.
- Doubling the penalties for breach of the Code from 300 penalty units to 600 penalty units, which would make it over $100,000.
- Ability for franchisees to negotiate an early termination.
- Restraint of trade clause to not have effect unless franchisee is in “serious breach” of the agreement.
Most of these proposed changes are set to come into effect from 1 July 2021, while the civil penalty provisions are expected to come into effect once the amendments to the Competition and Consumer Act 2010 (Cth) passes parliament.
Franchise operators will therefore need to examine their contracts and practices to ensure they are prepared for the upcoming changes.
Written by Oguzhan Sheriff
Director at RSG Lawyers and Associates.
Footnotes available on request.