Following the findings of an expert panel, the government announced changes to the Franchising Code of Conduct (Code) and unconscionable conduct laws in November 2009. Today, the Government announced further changes including the "most sweeping reform of the Franchising Code of Conduct since its inception 12 years ago".
Plain English guide
Speaking at the BRW Franchising Forum, the Minister for Competition Policy and Consumer Affairs, Dr Craig Emerson, announced that the Government will be requesting that franchisors provide prospective franchisees with a plain English guide emphasising the key costs, benefits and risks of the franchise system.
The guide will be voluntary and will be additional to the franchise disclosure document currently required to be provided to prospective franchisees. However, the Government has reserved the right to make provision of the guide mandatory.
The Government is seeking the support of the franchising community in producing the document. Whilst having better informed franchisees is obviously a benefit to all franchisors, the existing Code disclosure requirements are onerous. The industry awaits the Government's preferred format of the plain English guide.
In addition to unveiling the plain English guide, the Government reaffirmed its commitment to strengthening unconscionable conduct laws under the Trade Practices Act 1974 (Cth) (Act) by expanding the Australian Competition and Consumer Commission's (ACCC) regulatory powers and focussing on inappropriate behaviours and contractual terms.
In particular, franchisors will have to make it clear to prospective franchisees, that there may be unilateral contract variations, unforseen capital expenditure, requirements to meet legal costs and confidentiality restrictions, and will also be required to explain the process for selling the business.
The disclosure obligations of franchisors will also be strengthened so that examples of unilateral contract variations during the previous three years are included in the disclosure document.
End of term arrangements
The Minister also reiterated that franchisors will be required to disclose all of the end-of-term arrangements, including a six month notice period.
This will be required for all new franchise agreements.
Franchisors and franchisees in dispute will be required to attend mediation and disclose their intentions. This will set new ground rules for the franchising sector.
Significantly, Dr Emerson also flagged that the Government does not intend to introduce further changes to franchising laws in the next three to five years, in order to allow time for case law to develop and the effectiveness of the changes to be evaluated.