Proposed changes to the Franchising Code of Conduct announced
This week, the Government released its exposure draft of proposed amendments to the Franchising Code of Conduct (Code). The exposure draft follows the Government’s response to the Fairness in Franchising Report earlier this year.
Except for provisions relating to dispute resolution and penalties, it is proposed that the draft amendments to the Code will come into effect from 1 July 2021. The changes to the dispute resolution procedures and penalties will come into effect the date the amendments are passed by Parliament.
While the Government is engaging in a consultation process between now and 4 December 2020, given that the Government has released an exposure draft as opposed to a summary of proposed changes, it seems unlikely that there will be fundamental movement from the principals in the draft, but rather adjustments around the sides to deal with specific concerns from industry raised during this period.
The key changes in the exposure draft centre around:
- the disclosure regime, including:
- a requirement to provide a ‘Key Fact Sheet’ highlighting the most critical information from the disclosure document;
- the inclusion of additional information in disclosure documents around significant capital expenditure, rebate arrangements, arbitration of disputes, early termination of franchise agreements, rights relating to goodwill and earnings information; and
- enhanced disclosure of lease information;
- termination and early exit, by:
- increasing the cooling off period from 7 to 14 days;
- including a regime for franchisees to negotiate an early exit; and
- including notice requirements where a franchisor proposes termination for the ‘special circumstances’ under the Code which allow a franchisee a window to dispute this before termination can occur;
- restrictions on franchisors requiring franchisees to pay legal costs of franchisors and clarifications in the marketing and cooperative fund provisions of the Code;
- new conciliation and voluntary arbitration provisions intended to create more affordable dispute resolution options for the franchising sector (with mediation remaining the first step in the dispute resolution process) together with rights for franchisees to come together and engage in multi-party dispute resolution with the franchisor; and
- doubling of penalties for breach of the Code to $133,200.
Maddocks’ Consumer Markets & Franchising Team will release a comprehensive summary of the proposed changes to the Code shortly with analysis on the likely practical impact of these changes for franchisors.
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