Following the Wein Review and considerable public consultation since early 2013, the new Franchising Code of Conduct (New Code) has been released and, assuming it is enacted, will take effect on 1 January 2015.
The regulation giving effect to the New Code is expected to tabled before Parliament shortly. The New Code has received bipartisan support and is therefore expected to be passed unchanged.
The New Code contains a number of significant regulatory changes. Franchisors will need to understand what the New Code means for their business and determine what changes they will need to make prior to the commencement date.
Key issues for franchisors in the New Code?
Minter Ellison's National Franchising Team will be conducting workshops on the New Code. In the meantime, this Alert provides a snap-shot of some of the critical features of the New Code which franchisors will need to understand in detail prior to the 1 January 2015 commencement date.
Penalties for New Code breaches
- Civil pecuniary penalties will apply for breaches of the New Code of up to $51,000 per breach.
- The ACCC will have the power to issue 'on the spot' infringement notices of up to $8,500 for breach of a provision of the New Code to which a pecuniary penalty applies.
- Substantial changes to the existing prescribed content of disclosure documents, including the removal of certain disclosure requirements and the imposition of new categories of disclosure.
- Changes to the disclosure regime for master franchise systems.
- Creation of a new 'Information Statement' which franchisors will need to provide to prospective franchisees as soon as practicable after the prospective franchisee formally applies or expresses an interest in acquiring a franchised business.
- Changes to the requirements for updating disclosure documents.
Duty of good faith
- The imposition of a duty of good faith on parties to a franchise agreement in relation to any matter arising under or relating to the franchise agreement and the New Code, a breach of which exposes parties to a pecuniary penalty.
Restraints of trade
- Franchisors will be prevented from relying on post franchise agreement restraints of trade in certain specified circumstances.
Capital expenditure restrictions
- Franchisors will not be able to compel franchisees to incur 'significant capital expenditure' unless certain requirements are met.
Separate bank account for marketing funds and contribution to marketing fund
- Franchisors will be required to keep separate bank accounts for marketing funds. Further, franchisors who operate company-owned franchises will be required to contribute to a marketing fund on the same basis as franchisees.
- Franchisors will be required to retain certain information for a period of 6 years.
Changes to 'usual wholesale price' exception
- The current 'usual wholesale price' exception in the definition of franchise agreement will be replaced with the phrase 'supplied on a genuine wholesale basis'. The new phrase has not been defined.
Dispute resolution provisions
- Restrictions will apply in relation to where dispute resolution must take place and franchisors will not be able to require franchisees to pay the franchisor's costs in relation to settling a dispute.
In light of the risk of penalties, franchisors must understand the changes to the regulatory framework and what steps they need to take to comply with the New Code from 1 January 2015.
Download a copy of the New Code and Explanatory Statement