The Competition and Consumer (Industry Codes—Franchising) Regulation 2014 containing the new Franchising Code of Conduct will commence on 1 January 2015.
The new Code introduces an obligation on the parties to a franchise agreement to act in good faith.
Changes made to the disclosure requirements include:
- streamlining the disclosure document by removing unnecessary, duplicative provisions that required a summary of the franchise agreement to be produced;
- allowing franchisors to depart from the strict format of the disclosure document to improve readability, by moving all non-applicable items to an attachment; and
- requiring franchisors to provide prospective franchisees with an easy to understand information statement about franchising, in the form set out in the new Annexure 2 to the Franchising Code.
There will be a transition period before existing disclosure documents are required to be updated in accordance with the Franchising Code, until 31 October 2015 (rather than being required to update at the commencement of the Franchising Code on 1 January 2015). A franchisor will also be allowed to use and rely on an existing disclosure document until 1 November 2015.
The new Code specifies that certain types of clauses cannot be included in a franchise agreement, such as those:
- releasing the franchisor from liability towards the franchisee;
- specifying that ‘an action or proceedings’ or mediation in relation to a dispute be brought in the State or Territory outside that in which the franchised business is based or outside of Australia; and
- requiring the franchisee to pay the franchisor’s costs of settling a dispute.
If a franchise agreement contains such clauses, they will have no legal effect.
The new Code also deals with:
- restraint of trade clauses providing that they have no effect after a franchise agreement expires if certain circumstances occur;
- limitations on the franchisor to require a franchisee to undertake significant capital expenditure;
- marketing and advertising fees;
- disclosure of details of former franchisees; and
- the right of franchisees to associate.
