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.