When entering into a franchising agreement, it is important to be aware of the rules and regulations required by the Franchising Code of Conduct. Keep reading this Legal Kitz blog to find out more about what may be required.

The Franchising Code of Conduct (otherwise known as the Franchising Code) is a mandatory industry code under the Competition and Consumer Act 2010. It is a set of rules which regulates any potential franchising agreement between Australian franchisees and franchisors. The Franchising Code aims to inform potential franchisees with all of the necessary information before they enter into a franchising agreement, and can offer cost-effective solutions should there be a dispute. 

A franchising agreement is a contract between a franchisee and franchisor, which may be written, verbal or implied. Under a franchising agreement:

• the franchisor grants the franchisee the right to conduct a business offering goods or services under a system or plan which is determined, controlled or suggested by the franchisor;
• the business is associated with a trademark, advertising or commercial symbol specified by the franchisor; and
• the franchisee must pay an agreed fee to the franchisor before starting or continuing the business. 

The Franchising Code of Conduct is not intended to replace legal or business advice before entering into a franchise agreement. Its sole purpose is to supply regulation.

How does it help me as a franchisee?

As a franchisee, the Franchising Code will help give guidance on:

• what you need to do as a franchisee;
• what information the franchisor needs to share with you;
• the information a franchise agreement must include;
• dispute resolution and mediation advice; and
• the minimum standard of conduct within the relevant industry. 

How does it help me as a franchisor?

As a franchisor, the Franchising Code will help give guidance on:

• what you need to do as a franchisor; 
• what information you must share with the franchisee;
• the information a franchise agreement must include;
• dispute resolution and mediation advice; and
• the minimum standard of conduct within the relevant industry.

What is included in the Franchising Code of Conduct?

The Franchising Code covers many areas which are relevant to a franchising agreement. For example, the Code:

• determines what information must be disclosed between a franchisor and franchisee before and after entering into a franchise agreement;
• stipulates the conditions of the rights of the parties under a franchise agreement; and
• provides dispute resolution mechanisms for both parties.

Here is some more information about sections of the Franchising Code of Conduct. 

Good faith

The Franchising Code provides an obligation on the franchisor and franchisee to act in good faith. This obligation cannot be limited or excluded by the franchisor or franchisee within the franchising agreement. 

Disclosure

When entering into a franchise agreement, the franchisor must supply a disclosure document to the franchisee. This document must include information such as:

• details of all current franchisees in the franchise system;
• details of all franchisees which have left the system in the last three years;
• details of any relevant legal action that is currently being taken against the franchisor; 
• financial and business details of the franchisor; and
• details of the costs and fees required to commence and operate the franchise. 

At least 14 days before a franchisee enters into, renews or extends their franchise agreement or pays a non-refundable deposit in relation to the franchise agreement, the franchisor must supply the franchisee with a:

• copy of the Key Facts Sheet (which includes important information for the franchisee to make an assessment about the franchise offer);
• copy of the Franchising Code of Conduct;
• copy of the disclosure document; and
• franchising agreement in the form it is to be executed. 

Franchise agreements 

The franchisee also has certain rights provided by the Franchising Code in relation to franchising agreements. These include:

• a 14-day cooling off period after the franchise agreement has been signed or a non-refundable deposit has been paid. If exercised, the franchisor must give a refund of any payment the franchisee has made within 14 days. 
• the franchisor is prohibited from preventing a franchisee from forming an association with other franchisees for a lawful purpose; 
• a franchise must not contain a statement which releases the franchisor from general liability towards the franchisor;
• a franchise agreement must not contain a waiver of any verbal or written representation made by the franchisor; and 
• a franchise agreement must contain a dispute resolution clause which complies with the Franchising Code. 

Termination

The Franchising Code of Conduct sets out the provisions which allows a franchisor to terminate a franchisee.

• If a franchisee breaches a franchise agreement, a franchisor must follow the provisions in the Code relating to a provision of notice in writing and allowing the franchisee a “reasonable time” to remedy the breach;
• If a franchise agreement has been entered into before 1 July 2021, and the circumstances fall within special circumstances set out in the Franchising Code;
• If a franchise agreement has been entered into after 1 July 2021, a franchisor may terminate a franchise agreement by providing 7 days’ notice if the franchise agreement allows the franchisor to do so, and the circumstances fall within special circumstances set out in the Franchising Code. 
• If a franchisee has received a 7 days’ notice of termination, they may raise a dispute by following the process set out in the Franchising Code. If raised, the franchisor cannot terminate the agreement until after 28 days from the proposed termination notice.

Dispute resolution

In the instance of a dispute, the Franchising Code sets out a procedure for dispute resolution:

1. Written Notice of Dispute. The complainant must send a letter including the nature of the dispute, the desired outcome, and what action they believe will settle the dispute.
2. Direct negotiation between parties. Before taking any further action, the parties must endeavour to resolve the dispute through direct negotiation.
3. Appointment of a dispute resolution practitioner. If direct negotiation has failed, after 21 days of the written notice of dispute being given, either party may refer the matter to a dispute resolution process (such as mediation or conciliation).
4. Dispute Resolution Process. The dispute resolution process must be engaged in by the parties before any further action is taken. 

Legal advice

Franchising agreements and the Franchising Code of Conduct can become intimidating and confusing. You don’t need to do it alone: Legal Kitz is here to help. We offer FREE 30-minute consultations to assist you with any queries or concerns. Book here now for your free consult.