Whether you’re a franchisor or a franchisee, watching the brand and business grow is an exciting experience. However it is important that parties to a franchise agreement understand the duties and regulations contained in the Franchising Code of Conduct to ensure compliance with the law.
What is the Franchising Code of Conduct
The Franchising Code of Conduct is a mandatory industry code that has been regulated by the ACCC since 1998. It regulates the relationship between the franchisee and franchisor and provides rules and penalties for the parties’ conduct in a franchise agreement. The original code has since been repealed and replaced with a new amended code since 1 January 2015. All relationships and conduct between franchisees and franchisors on or after 1 January 2015 are now covered under the Code.
It is important that businesses understand the changes and review their own franchise agreements with a franchise lawyer to ensure they comply to the new Code.
What’s covered in the Code?
The Code aims to facilitate and assist with the relationship between the franchisee and franchisor. It covers a wide range of issues that can arise within the relationship and outlines the duties between the parties to a franchise agreement which includes:
- Disclosure of information between parties;
- Terms of the agreement;
- Termination of the agreement; and
- Complaint handling and dispute resolution procedures.
However under the new Code, there have been significant changes made to the duties, obligations and penalties to parties under a franchise agreement.
Impact of changes
Under the new Code, the parties to a franchise agreement are subject to increased regulations and responsibilities. Importantly, the new Code has adopted the obligation for parties to act in ‘good faith’ in their relationship and dealings with each other. The element of the ‘good faith’ will now apply to issues including but not limited to:
- honesty and deceit between parties to a franchise agreement;
- conduct that is arbitrary or inconsistent with the terms of the franchise agreement; and
- the level of cooperation that is required of parties to fulfill the terms of the agreement.
The ACCC has outlined specific legislative changes under the new Code which include the introduction of financial penalties and infringement notices for serious breaches of the code which include the following matters:
- Obligation of parties to act in good faith in their dealings with one another;
- Franchisors to provide prospective franchisees with an information sheet outlining risks and rewards of franchising;
- Franchisors to provide transparency in the use of money for marketing and advertising;
- Disclosure on the ability of the franchisor and franchisee to sell online; and
- Prohibition on franchisors importing significant capital expenditure except where allowed in specific circumstances.
What does this mean?
It is important that businesses who have an existing franchise agreement or are thinking of entering a franchise agreement understand their duties and responsibilities under the Code. Existing franchisors and franchisees should review their franchise agreements and disclosure documents to ensure that they comply with the changes. Failure to do so could result in significant fines and penalties for serious breaches of the code.
LawPath has experienced franchise lawyers who can help you review your franchise agreements and advise you on your rights and obligations.
Protect your business by getting in touch with an experienced franchise lawyer. Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.