Make sure your franchise is compliant with the April 2022 amendments to the Franchising Code of Conduct to avoid facing substantial fines.
It is a requirement that all franchisors stay up to date on their obligations under the Franchising Code of Conduct (“the Code”). In April 2022, new amendments to this Code came into effect. These changes place several new requirements on franchisors and set out new substantial penalties on franchisors for non-compliance. This article breaks down some of the main changes to the Code.
The new penalties
With these new amendments, the financial penalties have substantially increased for businesses or individuals who are in breach of the Code. Although, the severity of the fine will differ according to the particular circumstances and the entity being prosecuted.
Corporations in breach of certain obligations under the Code could be fined up to $10,000,000 or three times the value of the benefit obtained from its non-compliant behaviour (whichever is the greater amount). If the court cannot calculate the benefit, companies will instead be fined up to 10% of their annual turnovers in the next 12 months. This penalty can be incurred by:
- Failing to disclose to franchisees certain materially relevant facts, including financial information about the business in the form of financial statements, declarations or audit reports
- Failing to notify a franchisee within 14 days about certain changes to the franchise system
- Restricting or impairing franchisees from forming an association
- Improperly handling vehicle dealership agreements
For other breaches under the code, the maximum financial penalty for companies has increased from 300 penalty units ($66,600) to 600 penalty units (currently $133,200) and $500,000 for individuals.
Information Statement to Prospective Franchisees
With the April 2022 updates, franchisors are now required to provide an Information Statement to prospective franchisees as soon as possible. This needs to be done within 7 days of them showing interest and before giving them any other documents. The ACCC provides a standard copy of this Information Statement for Prospective Franchisees which is structured as a four page summary covering information including costs, fees, franchisee rights, dispute resolution, risks and the cooling off period.
Good faith obligations
Under the Code, all parties are required to act in good faith. Good faith means not acting in a way that is unreasonable or arbitrary and for some irrelevant purpose. In practice, this means not withholding any information that is required for potential franchisees to make informed decisions and by not partaking in any misleading and deceptive conduct.
With the new modifications to the Code, franchise agreements cannot contain provisions that attempt to limit or exclude this obligation of good faith, including by reference to another document.
Uploading the franchise disclosure document online
Another key update is that franchisors now need to upload their disclosure statement online. This must be done through the Franchise Disclosure Register before the 14th November 2022. A franchise disclosure document contains crucial information on the franchise’s financial details, any operating costs, fees and payments, further contract details, the business’ history of legal action along with when the agreement is due to end. Before uploading this document online, it is always a good idea to review its terms and details to make sure they properly reflect the nature of your franchise.
If you need help with any of these amendments, our experienced franchise lawyers can assist as part of our subscription membership or as a one-time review and registration procedure. Please contact us today at 1300 337 997 or through the contract form below to ensure you meet the pending deadline for compliance.