Franchising Updates
Government
Announces Likely Changes to Franchising
Regulations
In August 2020, the Australian government published a 20-page
response to the report of the parliamentary committee which
conducted an inquiry into franchising in 2018. The committee's
report, 'Fairness in Franchising', was released in March 2019 and
made many recommendations for reform of the franchising sector,
identifying problems ranging from non-compliance with the
Franchising Code of Conduct to sharp and wrongful commercial
conduct by franchisors.
In its response to the report, the government has stated its
support for action to reform the sector. It has signalled that
change is needed to improve fairness and transparency for
franchisees and outlined some of the key changes that are intended.
These include:
- A doubling of the penalties that apply for a breach of the
Franchising Code, from $66,600 to $133,200.
- A new key disclosure information fact sheet to improve and
simplify upfront disclosure to franchisees, with information taken
from a franchisor's main disclosure document.
- An increase in transparency surrounding retail leases.
- A requirement that any financial information from franchisors
must be part of the franchisor's disclosure document.
- The development of a public register of franchisors.
- The establishment of a franchising website to make it easier
for franchisors and franchisees to access information and
support.
- A strengthening of franchisees' rights when a franchisor
demands significant capital expenditure from a franchisee during
the course of a franchise.
- Implementation of a voluntary binding arbitration model for
franchising disputes, similar to that in the Dairy Industry
Code.
- Amending the Code to require a franchisor to provide 7 days'
notice to a franchisee of the proposed termination of a franchise
agreement in special circumstances.
- A ban on franchisors passing on the legal costs of preparing
franchise documents to a franchisee.
Some of the government's proposed changes are subject to further
consultation with stakeholders. This has disappointed some, who are
already concerned at the length of time that has elapsed since the
franchising inquiry began in 2018, while others have welcomed the
additional consultation before the government enacts what are
considered to be potentially far-reaching and costly changes to the
way franchisors do business.
Due to the scope of the intended changes and the requirement for
further consultation, it is likely in our view that changes to the
law affecting franchising will not take effect until towards the
end of 2020 or 2021 at the earliest. We await further developments
with interest.
