Franchising Alert – a revised Code is now in force

Posted on July 02, 2021

If you are a franchisor or franchisee (or are thinking of becoming one), you need to know that the franchising code has recently been significantly amended. This will impact on franchise agreements which are entered into, renewed, or extended from 1 July 2021 onwards.

Franchising Code

The Franchising Code of Conduct (Code) has, since it became a mandatory code in 1998, sought to balance out rights, remedies, responsibilities, and obligations between franchisors and franchisees. The federal government is constantly trying to recalibrate and adjust the balance between the two sets of parties. This has historically involved revisions and reforms to the Code every few years.

The new reforms generally shift greater responsibilities onto franchisors. This is a familiar theme, as there is a perceived inherent imbalance in power, and information asymmetry, between franchisors and franchisees, which the Code seeks to redress.

A key reform will be enhanced compulsory disclosure by franchisors. They will have to provide a ‘key facts sheet’ (as well as the current ‘disclosure document’) before entering into a franchise agreement (or renewing or extending a current one).

Other reforms include an extended cooling off period; improved franchisee rights upon early termination; superior dispute resolution such as access to arbitration, conciliation or mediation services; and the ability of two or more franchisees to participate in multi-party dispute resolution where franchisees have similar disputes under franchise agreements with the same franchisor.

Car dealer franchises

There are also specific changes for franchised dealerships of new passenger and light goods vehicles. These franchise agreements must now provide franchised dealers with at least a potential right to compensation for termination of the franchise agreement.

Further help?

The above is a high-level, non-exhaustive summary. We regularly advise franchisors and franchisees, so if you need assistance please feel free to contact us.

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