Changes to the Franchising Code of Conduct you need to be aware of

So, what changes have been made?

1. Dispute Resolution – More avenues for dispute resolution have been introduced to help mediate any conflicts between Franchisees and Franchisors. These include Multiple Party Dispute Resolution, Voluntary Arbitration and other new regulation being introduced about dispute resolution. These avenues may involve disputes being handled by written agreement between Franchisor and Franchisee; request from Australian Small Business and Family Enterprise Ombudsman (ASBFEO); and referral to an Alternative Dispute Resolution (ADR) Practitioner.
   
   
2. Pre-entry Disclosure Information – Prior to entering into a franchise agreement, Franchisors are now required to provide more information to prospective Franchisee, at least 14 days prior to either entering into an agreement or making a non-refundable payment to enter into an agreement. In the event where a Franchisor has given information to a prospective Franchisee prior to 1 July 2021, and an agreement has yet to be entered into, the Franchisor must now also provide the prospective Franchisee with the additional information required under the new amendments. Franchisors are now required to provide the following (pre-entry) disclosure information:

• • • • information concerning capital expenditure, marketing funds, rebates, restraints of trade, and in some circumstances earnings information;
      • Key facts sheet containing disclosure documents and information;
      • information concerning relevant leases, including copy of the lease or a summary of commercial terms;
      • a copy of the existing franchise agreement and any other relevant document where a franchise is being transferred.

3. Extended cooling-off period after entering into a franchise agreement, which has now been increased to 14 days.
   
   
4. Franchisee can terminate within 14 days of receiving leasing information or propose an early termination of an agreement. In respect of transferring an existing agreement, after 1 July 2021, the cooling-off period ends:
   
   
   • • • 14 days after becoming the franchisee (effective transfer of the franchise agreement); or
       • the day on which the new franchisee takes possession and control of the franchised business.

5. Termination of an agreement – The Franchising Code now allows early termination to be proposed by the Franchisee and for the Franchisor to respond in writing within 28 days of such a proposal on reasonably grounds. Additionally, the Franchisor can terminate without notice to the Franchisee on particular grounds.
   
   
6. Marketing funds, which replaces the word ‘advertising’ previously used, and its obligations apply to the fund administrator.
   
   
7. Franchisors are prohibited from passing on their legal costs to the Franchisee in respect of preparing, negotiating, or executing the franchise agreement unless a precise dollar figure is provided.
   
   
8. Franchise agreements cannot be varied retrospectively unless agreed by the Franchisee or majority of franchisees affected.
   
   
9. Restraint of trade provisions in the franchise agreement or ancillary documents are now more restrictive, for instance, if a Franchisee is not in a serious breach of the agreement(s) then the restraint of trade clause will not be effective.
   
   
10. New Vehicle Dealership Agreements whereby dealers operating as manufacturers agents are now protected under the Franchising Code. See the Best Practice Principles reflecting the new mandatory obligations in the Franchising Code.

11. Co-operatives (either registered under State or Territory co-operative laws) are now explicitly excluded under the Franchising Code, that is to say, if the Franchisor and Franchisee are both members of the same co-operative.