What is involved in complying with the Franchising Code?

The Franchising Code regulates the relationship between franchisors and franchisees. It is regulated by the Australian Competition and Consumer Commission (ACCC) who may investigate and pursue alleged breaches. The Code places a number of obligations on franchisors and franchisees which must be complied with.

The Franchising Code includes:

1. Disclosure requirements
2. A good faith obligation
3. A dispute resolution mechanism
4. A cooling-off period
5. Procedures for ending a franchise agreement

Here are some key obligations which must be complied with:

Disclosure requirements

Disclosure document:

• A franchisor must create and maintain a disclosure document within four months after the end of each financial year.
• The disclosure document must follow the format and content requirements of the code.

When a person proposes becoming a franchisee and an existing franchisee proposes renewing, extending or extending the scope of a franchise agreement, a franchisor must provide the following documents at least 14 days before entering into, renewing or extending the agreement:

• A copy of the franchising code
• A copy of the disclosure document
• The franchise agreement 
• Additional information may also be requested and required under the Code

A cooling-off period

Franchisees are entitled to a cooling-off period of 7 days after entering a new franchise agreement (not renewal, extension or transfer) or making any payment under the agreement (depending on which occurs first). A franchisor must refund in full all payments made by a franchisee under a franchise agreement within 14 days of the cooling-off period. 

A good faith obligation

Both the franchisor and franchisee have an obligation to act in good faith under the common law and the Code does not limit this obligation.

A dispute resolution mechanism

The franchise agreement must include a dispute resolution procedure in compliance with the Code. The Code dispute resolution procedures require that, in the case of a dispute:

• Written notice: The complainant informs the other party in writing of the dispute, detailing the nature of the dispute, the outcome sought and the actions they think are required to settle the dispute.
• Attempt to resolve: Following this notice, the parties should attempt to resolve the dispute amongst themselves.
• Appoint a mediator: If the matter has not been resolved after three weeks, either party may refer it to a mediator. If the mediator cannot be decided upon, either party may ask the Mediation Adviser to appoint a mediator. The mediation must be in Australia. Both parties must attend the mediation or have a representative who can enter an agreement on their behalf. If the dispute has not been resolved 30 days after the start of mediation, either party may ask the mediator to terminate the mediation.

The dispute resolution procedure under the Code does not prevent a party from commencing legal action.

Procedures for ending a franchise agreement

Notification: The franchisor must notify the franchisee of the decision to renew or not renew the franchise agreement or enter into a new franchise agreement at least 6 months before the end of the term (if the term is 6 months or longer) or at least 1 month before (if the term is less than 6 months).

Termination: The Code regulates termination of a franchise agreement in three circumstances:

1. A breach by the franchisee of the agreement – this requires a franchisor to provide the franchisee an opportunity to remedy the breach. 
2. Special circumstances where an opportunity to remedy is not required – such as no longer holding a required licence, becoming bankrupt and being convicted of a serious offence.
3. Where the franchise agreement enables the franchisor to terminate the agreement before the end of the term and without the franchisee’s consent, the franchisor must provide reasonable notice and reasons for termination. 

Key takeaway

The franchising code places numerous requirements on both franchisors and franchisees. The obligations discussed above only cover key obligations under the Code briefly, both franchisors and franchisees must read the Code to fully understand their rights and responsibilities in order to ensure compliance.

If you need assistance ensuring compliance with the Code, get in contact with our franchise lawyers on 1300 337 997.