Cooper Grace Ward released an alert earlier this year regarding the Federal Government’s proposal to amend the Franchising Code of Conduct.

In brief, the proposed amendments sought to:

  1. introduce a general duty on franchisors and franchisees to act in good faith in their dealings with each other;
  2. enhance enforcement tools available to the Australian Competition and Consumer Commission (ACCC) to deal with serious breaches of the Code by allowing the ACCC to seek civil pecuniary penalties of up to $51,000 from the court and issue infringement notices with penalties of up to $8,500;
  3. require improved disclosure and transparency of marketing funds;
  4. require franchisors to provide prospective franchisees with short form, easy to understand information regarding the risks and rewards at an early stage; and
  5. clarify and streamline the operation of the Code to reduce red tape and compliance burdens on business.

Some of the proposed amendments in relation to the ACCC’s enforcement powers were incorporated into the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014. The Bill received royal assent on 24 September and will come into force on 1 January 2015. The Bill will amend the Competition and Consumer Act 2010 to insert new provisions to:

  1. allow regulations to be made prescribing a pecuniary penalty for the breach of a civil penalty provisions of an industry code; and
  2. empower the ACCC to issue an infringement notice where it has reasonable grounds to believe that a person has contravened a civil penalty provision of an industry code.

The amendments are underpinned by the recommendations of the independent review by Alan Wein last year and are designed to strengthen the Code’s effectiveness and improve its responsiveness to the franchise sector’s unique commercial characteristics. In particular, it is hoped that the amendments will increase compliance and reduce disputes by giving the ACCC stronger powers and greater flexibility in how it enforces the Code.

The amendments require franchisors to review and amend their franchise agreements and disclosure requirements for compliance before the date the changes take effect (which is expected to be 1 January 2015) or face hefty penalties.