New Franchising Code of Conduct: What You Need to Know
On April 1, 2025, a new Franchising Code of Conduct will come into effect in Australia, bringing significant changes to the franchising industry.
Background:
The Franchising Code of Conduct (Code) regulates the conduct of franchisors and franchisees. It covers various aspects of the franchising process, from disclosure requirements to dispute resolution mechanisms. The Code forms part of the Competition and Consumer Act 2010.
Following the Independent Review of the Franchising Code conducted by Dr Michael Schaper in 2024, the Australian Government repealed the current Code under the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Current Code) and replaced it with the Competition and Consumer (Industry Codes—Franchising) Regulations 2024 (New Code).
What will the Code apply to?
The New Code will apply to franchise agreements entered into, transferred, renewed, or extended on or after April 1, 2025.
The Current Code will continue to apply to franchise agreements entered into before April 1, 2025, until they are terminated, transferred, renewed, or extended.
Some aspects of the New Code, such as compensation for early termination and reasonable opportunity for return on investment, will only apply from 1 November 2025.
Key Changes:
- Civil Penalty Provisions
All substantive obligations under the New Code are subject to civil penalties, with a maximum of 600 penalty units for most contraventions.
- Statutory Review
A statutory review of the New Code must commence before 1 April 2030.
- Purpose of the New Code
The New Code’s purpose has been revised to emphasise regulating conduct, improving industry standards, and providing fair dispute resolution.
- Key Facts Sheet
Franchisors no longer need to provide a Key Facts Sheet for potential franchisees.
- Opt-out Provisions
Franchisees can opt out of receiving Disclosure Documents and the cooling-off period if they already have a similar agreement with the franchisor.
- Specific Purpose Funds
Requirements for specific purpose funds are similar to those for marketing and cooperative funds, with additional disclosure obligations.
- Restraint of Trade
Prohibits franchisors from entering agreements with certain restraint of trade clauses.
- Compensation for Early Termination
Franchise agreements must provide for compensation in case of early termination under specific circumstances.
- Reasonable Return on Investment
Agreements must offer franchisees a reasonable opportunity to make a return on investments.
- Termination for Serious Breach
Franchisors can terminate agreements with 7 days’ notice for serious breaches.
- Disclosure Document Updates
New requirements include disclosing litigation, existing franchises, and significant capital expenditure.
Conclusion:
Franchisors should review and update their franchise agreements and disclosure documents to ensure compliance with the New Code. As the commencement date approaches, it’s crucial for both franchisors and franchisees to familiarise themselves with these changes and seek legal advice to ensure compliance.
The team at Brand Partners is available to assist you in navigating these new regulations and updating your franchise documentation accordingly.
The New Code can be found here: https://www.legislation.gov.au/F2024L01605/latest/text
On 1 April 2025, a new Franchising Code of Conduct will come into effect in Australia, bringing significant changes to the franchising industry.