A draft of the proposed revised new look Franchising Code of Conduct has just been released by the government.

An Exposure Draft of the revised Code was released by the government on 1 April 2014 together with a media release titled "The Future of Franchising" issued by the Federal Small Business Minister, Bruce Bilson.

The release of the Exposure Draft follows the review of the Code conducted by Alan Wein in 2013, the 24 June 2013 release of the then Government's official response to the 18 recommendations made by the Wein Report and a period of further consultation. "The Future of Franchising" statement identifies 4 key areas that the government has focused on in producing the changes:

  1. reducing red tape
  2. improving information available to franchisees
  3. strengthening the balance in franchise agreements
  4. improving conduct in the sector and the overall effectiveness of the Code.

Key Changes

Key changes include the following:

  • penalties of up to $51,000 for major breaches of the Code
  • power of ACCC to issue infringement notices of up to $8,500 without Court order
  • increased audit powers for ACCC
  • introduction of obligation to act in "good faith
  • short form "information sheet" risk statement to be provided to prospective franchisees
  • removal of Annexure 2 short form disclosure document
  • removal of double disclosure obligations on master and foreign franchisors
  • higher level of disclosure requirements for marketing fund expenditure
  • requirement for company owned franchises to contribute to marketing fund
  • restrictions on ability of franchisor to require significant capital expenditure
  • restrictions on ability of franchisor to impose restraints of trade on former franchisees.

General Comments

The new format Code embodies most of the existing Code together with the new changes but is completely reformatted and renumbered.

While one of the intents of the government has been to reduce red tape, the revised Code itself (excluding annexures) is certainly not shorter than it was.

The new statutory Code definition of "Good Faith" does not make any reference to the common law duty as recommended in the Wein report.

If the legislation is passed in in its current form, there will inevitably be much deliberation on what "Good Faith" consists of.

Submissions

It is intended that the announced proposed changes to the Code will come into effect from 1 January 2015.

The government has announced a 3 week consultation period during which the public may make submissions. Public consultation into the proposed changes will close 30 April 2014.