Changes to Franchise Legislation

Australia is the franchise capital of the world. The sector is a great source of enterprise and innovation in numerous towns and in the cities of Karratha and Geraldton, in Durack.

The Minister for Small Business Bruce Billson has released the Commonwealth Government’s improved Franchising Code of Conduct to ensure the Australian franchising system is as healthy and as fair it can be.

This new Code will deliver an estimated $8.6 million per year of savings in administrative costs across the franchising sector. 

Melissa Price, Member for Durack said the government was working to cut red tape for small businesses in the Durack electorate, as well as strengthening the effectiveness of the Code and guarding against state-based regulation.

“The amendments get the balance right between maintaining a level of regulation to foster the effective operation of the sector while reducing the overall regulatory burden,” Ms Price said.

Some of the main features of the new Code are:

  • the introduction of a statutory obligation on franchisors and franchisees to act in good faith in their dealings with each other;
  • a streamlined disclosure process that removes unnecessary information requirements;
  • improved transparency in how marketing funds are used and administered;
  • more flexible and stronger enforcement options for the Australian Competition and Consumer Commission (ACCC), with the introduction of civil penalties for serious breaches of the new Code, the ability to issue an infringement notice where appropriate and expanded audit powers;
  • an information statement that will give prospective franchisees essential information about the nature of franchising before they make a commitment to sign an agreement; and
  • a reasonable and balanced restriction on the enforceability of restraint of trade clauses, that still recognises the legitimate interests of franchisors.

Obligations and rights under the current Code will largely continue in the same way they do now after the new Code commences on 1 January 2015.

To facilitate a smooth transition to the new Code, franchisors will be able to use their existing disclosure documents until 31 October 2015. This means franchisors that might be signing up new franchisees in December and have obligations that continue into the new year, must still discharge those existing obligations post 1 January 2015, in accordance with the current Code.

The new Code will apply to conduct occurring after the 1 January 2015 start date.

Penalties will apply for conduct after 1 January 2015 that breaches the new Code.

The ACCC is preparing guidance material for franchisors and franchisees, which will be available shortly.

Latest figures show the franchising sector has grown to an estimated 79,000 business units, employing over 460,000 Australians and sales turnover of $144 billion annually.  Additionally, 86 per cent of franchise system operating in Australia originated in Australia.