The Government has adopted most of the recommendations for amendments to the Franchising Code of Conduct put forward by Mr Alan Wein’s independent review1.
Once the Code is amended, amongst other changes:
Franchisors and franchisees will have a statutory obligation to act in good faith towards one another.
The Government intends to make this more certain by providing guidance to parties and having the ACCC prepare educational materials and training.
This will be a mammoth task, in particular to distinguish for small business operators the concepts of ‘good faith’ from the obligation not to engage in ‘unconscionable conduct’ – which is already prescribed by the Australian Consumer Law (Competition and Consumer Act 2010 (Cth), Sch 2).Before franchisors make decisions such as exercising rights under a franchise agreement they will now need to consider not only whether to do so raises ‘unconscionable conduct’ issues, but also ‘good faith’ issues.
Indeed, the good faith obligation will impact on the negotiation and performance of franchising contracts, as well as the resolution of disputes. The mere fact that the contract and Code have been complied with will not prevent conduct falling foul of the good faith obligation.
- The ACCC will be able to seek pecuniary penalties for breach of the Code, including breach of the good faith obligation. The Government has indicated that this change is subject to consultation with the Office of Parliamentary Counsel.
- Post termination restraints of trade on franchisees will be unenforceable in certain situations – even though they otherwise comply with the law.
- Franchisees will have a statutory right to terminate franchise agreements in some franchisor insolvency situations.
Franchisors will now again need to update documents and procedures. This time, there is the added bonus of knowing that, even if they otherwise conform to the legal requirements, steps taken by franchisors (and franchisees) can be met with allegations of breach of the good faith obligation and the spectre of ACCC penalties, for those who slip up on the uncertain slopes of good faith.