Franchising can be an effective way to grow and expand your business, as it has the potential of introducing your products and services to new markets and extending your brand’s reach. If you are thinking of franchising your business, you need to know about the franchise laws in Australia to consider requirements and necessary steps to follow before franchising a business, as starting a franchise requires a legal process.
What is Franchising?
Franchising is a popular business model, where networked businesses connect by entering contracts. The franchisor agrees to allow the franchisee to run its business according to the franchisor’s requirement, under the franchisor’s own brand and trademark, and the reputation for a limited time. In return, the franchisor earns fees and gains brand awareness and goodwill in the market, achieving success for its business.
Why is Franchising an effective method for a business?
Franchising a business can be an effective method to expand a business as franchising offers a potent strategy for business expansion by providing access to well-known brands in established markets. This approach mitigates the risks associated with new ventures and independent startups, offering a structured framework for success. Additionally, franchisors typically offer comprehensive training and ongoing support to franchisees, equipping them with essential skills. The established track record of franchising businesses also facilitates easier access to funding from banks and financial institutions.
Laws regulating Franchising in Australia
There are various laws that the franchisor must follow when franchising a business in Australia. Some of the substantial law that plays a significant role are:
- Contract Law
The franchise agreement is a contract specifying the relationship between the parties and setting out the rights and obligations of both franchisor and franchisee. Contract law is important to understand in franchising a business, as not following the terms of the franchise contract may amount to breach of contract.
In the circumstances of a breach of contract by either party, the other party can take their own action to make the breaching party follow the terms of the contract. Where any dispute arises, the dispute can be resolved with the alternative dispute resolution process with the ‘Australian Small Business and Family Enterprise Ombudsman,’ before starting any court proceedings.
- The Franchising Code of Conduct
The Franchising Code of Conduct addresses the imbalanced power dynamics between franchisors and franchisees, recognizing that franchisees often wield little influence over crucial business decisions. The code mandates both parties to act in good faith toward each other. Accordingly, franchisors are required to provide essential information and documents, such as an information statement outlining franchising, the franchise agreement, a disclosure document, a key facts sheet, and the Franchising Code of Conduct, at least 14 days prior to signing the franchise agreement. Additionally, franchisors must provide certain details like marketing fund statements, updated information of material relevance, and any supplementary agreements during the franchise agreement.
For new franchisors seeking to engage with prospective franchisees, it is compulsory to register with the franchise disclosure register, granting access to crucial franchising details at least 14 days before entering into any franchise agreement. Moreover, these franchisors must ensure the register is updated each fiscal year.
- The Competition and Consumer Act 2010
Since all enterprises operating in Australia are bound by competition and consumer laws, franchises are subject to these regulations as well. These laws mandate businesses to offer consumer guarantees for most goods and services, prohibit the inclusion of unjust terms in contracts, including franchising agreements, and forbid franchisors from taking part in deceptive or unconscionable behavior when interacting with franchisees. Furthermore, they prevent the substantial reduction of competition, particularly when franchise supply arrangements result in exclusive dealings.
- The Fair Work Act 2009
Franchisors can be held accountable for breaches of workplace laws committed by their franchisees, particularly when the franchisee’s business heavily relies on intellectual property associated with the franchise (like trademarks, logos, or marketing), and when the franchisor exerts significant influence or control over the franchisee’s operations.
Legal responsibility falls on franchisors, including their officers, if they were aware or reasonably should have been aware of potential or likely breaches by the franchisee, yet failed to take reasonable measures to prevent them. Breaches encompass violations of entitlements under the National Employment Standards (NES), awards and agreements, national minimum wages, equal remuneration orders, etc.
In instances where the franchisor is held liable, the court may mandate compensation for the affected employees of the franchisee and impose penalties on the franchisor.
Conclusion
To comply with evolving laws, franchisors should regularly assess their existing systems supporting franchisees’ adherence to these regulations when entering a franchise agreement. It’s essential to stay updated with evolving laws and ensure that franchising a business currently aligns with prevailing regulations. Contact OpenLegal at enquiries@openlegal.com.au or fill out the form below to request a free quote and maintain proper adherence to legal standards.
Author
Athin Prasain is a Legal Intern at OpenLegal and is currently studying Juris Doctor at the University of Technology, Sydney, and is a graduate with Master of Laws specialising in ‘Media, IP and Technology Law’ from the University of New South Wales.
