On 1 January 2015 the new Franchising Code of Conduct came into effect, introducing new rules and penalties for franchisees and franchisors after the existing Franchising Code was repealed.
Regulated by the ACCC, the Franchising Code of Conduct is a mandatory industry code that applies to the parties of a franchise agreement. The ACCC will investigate any alleged breaches of the Code and now has the power to issue financial penalties for serious breaches. Since 2010 ACCC has had power to issue fines only for breaches of Australian Consumer Law, which the watchdog sees as a cost effective way to resolve issues and avoid initiating legal proceedings.
Failure to act in good faith, provide a disclosure statement or attend mediation could result in fines up to $8,500 or $1,700 for individuals per breach. If the matter ends up in court, the ACCC can seek penalties of up to $51,000 for misbehaving franchisees or franchisors.
Parties are now obligated to act in good faith towards one another. While good faith is not specifically defined in the Code, under Common Law it requires parties to an agreement to “exercise their powers reasonably and not arbitrarily or for some irrelevant purpose. Certain conduct may lack good faith if one party acts dishonestly, or fails to have regard to the legitimate interests of the other party.”
Other changes include:
- Franchisors are now required to provide prospective franchisees with a short information sheet outlining the risks and rewards of franchising.
- The new Code also requires additional disclosure about the ability of the franchisor and a franchisee to sell online.
- Franchisors must now provide greater transparency in the use of and accounting for money used for marketing and advertising and to set up a separate marketing fund for marketing and advertising fees.
- It also prohibits franchisors from imposing significant capital expenditure except in limited circumstances.
More information about the new Franchising Code of Conduct is available here.