The Franchising Code of Conduct has undergone significant changes, with new rules coming into effect on 1 April 2025. These amendments aim to address long-standing concerns about transparency, fairness, and accountability in franchising relationships. Whether you are a franchisor or franchisee, understanding these changes is essential to ensure compliance and protect your rights under Australian law.
In this article, our commercial contract lawyer breaks down the key changes, their implications, and what they mean for stakeholders in the franchising sector.
Key Takeaways
- The Franchising Code of Conduct is a mandatory industry code under the Competition and Consumer Act 2010 (Cth).
- New rules effective from 1 April 2025 focus on improving transparency, fairness, and dispute resolution mechanisms.
- Key changes include enhanced disclosure requirements, extended cooling-off periods, and increased penalties for non-compliance.
- Both franchisors and franchisees must act in good faith throughout their relationship.
- The Australian Competition and Consumer Commission (ACCC) enforces the Code and investigates breaches.
What is the Franchising Code of Conduct?
The Franchising Code of Conduct is a legal framework that regulates the relationship between franchisors and franchisees in Australia. It sets out mandatory obligations for both parties, ensuring fair dealings and transparency in franchising arrangements. The Code applies to all franchise agreements entered into, renewed, or extended in Australia.
Key Changes to the Franchising Code of Conduct (Effective 1 April 2025)
Enhanced Disclosure Requirements
Franchisors are now required to provide a Key Facts Sheet summarising critical information about the franchise. This is in addition to the existing disclosure document and franchise agreement. The Key Facts Sheet ensures franchisees can quickly access essential details about the franchise opportunity.
Extended Cooling-Off Period
The cooling-off period for new franchise agreements has been extended to 14 calendar days. This period begins after the franchisee signs the agreement or pays any non-refundable money, whichever occurs earlier. This change gives franchisees more time to seek advice and reconsider their decision.
Restraint of Trade Clauses
Restraint of trade clauses are now unenforceable if a franchisee was willing to renew the agreement on substantially similar terms, but the franchisor refused.
This change protects franchisees from unfair restrictions when agreements are not renewed.
Dispute Resolution Mechanisms
Franchisors and franchisees must engage in alternative dispute resolution (ADR) processes. These include mediation or conciliation, before escalating disputes. Multi-party dispute resolution is also available for disputes involving multiple franchisees.
Marketing Fund Transparency
Franchisors must:
- Provide detailed annual financial statements for marketing funds
- Include itemised expenses in these statements
- Allow franchisees to request an independent audit of the fund
This ensures accountability in the use of marketing funds.
Capital Expenditure Restrictions
Franchisors cannot require franchisees to undertake significant capital expenditure unless:
- It is disclosed upfront
- It is agreed upon by the franchisee
- It is required by law
This change prevents franchisors from imposing unexpected financial burdens on franchisees.
Termination Rights
Franchisors must provide at least 7 days’ notice before terminating a franchise agreement for special circumstances, such as fraud or insolvency. This gives franchisees an opportunity to address issues or seek legal recourse.
Good Faith Obligation
Both franchisors and franchisees are required to act in good faith throughout their relationship. This obligation applies during negotiations, performance, and dispute resolution.
Increased Penalties for Non-Compliance
Penalties for breaches of the Code have been significantly increased:
- Fines of up to $10 million
- Three times the benefit obtained from the breach
- 10% of annual turnover (whichever is greater)
Franchisee Legal Costs
Franchisors cannot require franchisees to pay legal costs incurred by the franchisor in preparing, negotiating, or executing the franchise agreement.
Supply Arrangements Disclosure
Franchisors must disclose:
- Any rebates or financial benefits they receive from suppliers
- Whether these benefits are shared with franchisees
This promotes transparency and trust in supply arrangements.
Implications for Stakeholders
For Franchisees
- Greater protection and transparency in franchising arrangements
- More time to make informed decisions with the extended cooling-off period
- Improved access to dispute resolution mechanisms
For Franchisors
- Increased compliance obligations, including enhanced disclosure and reporting requirements
- Potentially higher penalties for breaches of the Code
- Need to review and update franchise agreements and internal processes
For Legal Practitioners
- Advising clients on compliance with the new rules
- Assisting with dispute resolution and enforcement of rights under the Code
Frequently Asked Questions (FAQs)
What is the purpose of the Franchising Code of Conduct?
The Code aims to regulate franchising relationships in Australia by ensuring transparency, fairness, and accountability between franchisors and franchisees.
When do the new rules come into effect?
The new rules under the Franchising Code of Conduct came into effect on 1 April 2025.
What is a Key Facts Sheet?
A Key Facts Sheet is a concise document that summarises critical information about a franchise. It is designed to help prospective franchisees quickly understand the key aspects of the franchise opportunity.
How does the extended cooling-off period benefit franchisees?
The extended cooling-off period gives franchisees more time to seek advice, reconsider their decision, and ensure they fully understand the terms of the franchise agreement.
What are the penalties for non-compliance with the Code?
Penalties for breaches of the Code include fines of up to $10 million, three times the benefit obtained from the breach, or 10% of annual turnover (whichever is greater).
