Increased penalites for Franchising Code of Conduct announced

There are seven provisions of the Franchising Code that, if breached, will attract the maximum penalty applicable to corporations. These provisions include:

• Clauses 17 (1) and (2) (Disclosure of materially relevant facts) – relating to the obligation of franchisors to disclose financial statements, relevant documents, and any other material facts to a franchisee before an agreement is entered into within a specific timeframe.
  
  
• Clause 33 (Association of franchisees or prospective franchisees) – relating to the obligation of franchisors not to restrict a franchisee (including, prospective franchisee) from forming associations with other franchisees for a lawful purpose.
  
  
• Clause 46A (1) – (3) (Franchise agreement must provide for compensation for early termination) and 46B (Franchise agreement must provide reasonable opportunity for return on franchisee’s investment) – relating to new vehicle dealership agreements.

In addition, if the following sections of the Franchising Code are contravened, franchisors will incur a penalty of 600 units (equating to $133,200):

• Clauses 6 (4) and (5) (Obligation to act in good faith) – a franchise agreement or other documents cannot limit or exclude good faith obligations.
  
  
• Clause 11 (1) (Information Statement) – the franchisor must provide an information statement to a prospective franchisee no later than 7 days after the prospective franchisee formally applies or expresses an interest.
  
  
• Clause 15 (4) (Financial statement for marketing funds) – a financial statement for marketing funds must be provided to the franchisee within 30 days.
  
  
• Clause 22 (Costs of settling disputes) – a franchisor must not require a franchisee to pay their costs of settling a dispute under the franchise agreement.
  
  
• Clause 25 (2) and (6) (Franchisor’s consent to transfer) – a franchisor must not unreasonably revoke or withhold consent to a transfer of a franchise agreement.
  
  
• Clause 27 (4) (Termination – breach by franchisee) – a franchisor must not terminate a franchise agreement where the franchisee has remedied their breach, after allowing the franchisee reasonable time (no more than 30 days) to remedy the breach.
  
  
• Clause 29 (2) (Notice of termination by franchisor on particular grounds) – a franchisor cannot terminate a franchise agreement without providing 7 days written notice to the franchisee explaining their reasons for the proposed termination.
  
  
• Clause 30 (1) (Significant capital expenditure not to be required) – a franchisor has an obligation not to require a franchisee to incur a significant capital expense.

For information on changes made to the code in July 2021, refer to our article: Changes to the Franchising Code of Conduct you need to be aware of.