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Confirmed Changes to the Franchising Code of Conduct – The Government’s Response to Dr Schaper’s Code Review

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On 7 May 2024 the government released its response to the Independent Review of the Franchising Code of Conduct (Review) which was conducted by Dr Michael Schaper.

Of the 23 recommendations made in the Review, the government agreed to all but two recommendations which were agreed to in principle.

The government intends to remake the Code prior to the sunsetting in 2025, and will take a “staged approach” in that it will implement certain changes as part of the remake but will also conduct investigations into possible long-term changes to the sector.

Summary of key agreed changes:

 

Recommendation and government response
Amendments to the Code The Code will only be amended once every five years, commencing from the 2025 remake.  Franchisors can expect the next raft of significant changes to the Code in 2030.
Key Facts Sheet The Key Facts Sheet will be discontinued and will be “merged” into the disclosure document.
Simplifying obligations in existing franchise relationships

Requirements for existing franchise relationships will be simplified in relation to provision of disclosure documents and cooling off periods.

Return on investment The franchise agreement must provide a reasonable opportunity for the franchisee to make a return on their investment.
Compensation on early termination The franchisor must compensate the franchisee if there is an early termination of the franchise agreement.
Franchise Disclosure Register The Register will remain, and will require disclosure of any dispute resolution or adverse actions brought by enforcement agencies such as the ACCC.
Termination on particular grounds The government will liaise with the franchising sector to simplify clause 29 of the Code.  The intention is to enable better flexibility to terminate when a franchisee engage in serious conduct such as fraud or abandonment.
Name and shame ASBFEO will be granted the power to publicly name any franchisors that fail to participate meaningfully or at all in an alternative dispute resolution.
Penalties All substantive obligations under the Code will attract a maximum of 600 penalty units.

The government will consider increasing the infringement notice penalty to 60 penalty units.

Licensing regime The government will establish a taskforce to conduct a cost-benefit analysis of introducing a licensing scheme in the franchising sector (in that all franchisors must be licensed with a government agency before it can grant franchises).

 

The two recommendations that were agreed in principle relate to:

  • Creation of a website similar to “MoneySmart” which contains the majority of publications and details about franchising in Australia. The government will consider this website further after determining whether a licensing regime will be introduced to the franchising sector.
  • Granting franchisees the ability to seek ‘no adverse costs’ orders against franchisors. The government must consider whether this would introduce any unintended consequences before introducing this change.

The government has also flagged the ‘unfairness’ and power imbalance that exists in certain franchise relationships. As part of its response, the ACCC has been directed to provide further guidance on how franchisors can comply with the unfair contract terms regime, including any restraint of trade provisions.

Take aways

We can expect the Code to be drafted and remade within the next year which will incorporate most of the changes listed above.  It is noted that the federal election is expected to be held in early 2025, which may impact whether the changes will be passed in full.

Franchisors should nonetheless prepare for the proposed changes, and should seek advice as to what changes should be made to the franchise documents and to internal processes.

Franchise agreements and other standard form agreements should also be reviewed and amended as soon as possible, as the government has again flagged the importance of compliance by the franchising sector.

For advice or assistance to prepare for these upcoming changes, please contact a member of our Franchising Lawyers on +613 8540 0200 or as follows:

Raynia Theodore: raynia.theodore@mst.com.au

Louise Wolf: louise.wolf@mst.com.au

Esther Gutnick: esther.gutnick@mst.com.au