Franchise Alert – Government Amends Franchising Code of Conduct

The Federal Government has announced important changes to the Franchising Code of Conduct, and some ancillary provisions in the Trade Practices Act, including:

  1. The introduction of fines and penalties for unconscionable conduct and false and misleading representations;
  2. Random audits of franchise systems to be conducted by the Australian Competition and Consumer Commission (ACCC);
  3. Public warnings about rogue franchisors;
  4. An acknowledgement of good faith in relation to franchise agreements;
  5. A requirement to clarify end of term arrangements, including mandatory period of notice of renewal; and
  6. Provision to include all affected franchisees of a group to be included in ACCC actions.

The Government has also announced it will establish a panel of franchising experts to consider making further amendments to the Code “to prevent behaviours that are inappropriate in franchising agreements”.  That means the Government will seek to limit specific franchising behaviours it considers inappropriate. The Government considers the following seven behaviours to warrant specific attention:

  1. End-of-term arrangements;
  2. Dispute resolution;
  3. Unforeseen capital expenditure;
  4. Unilateral contract variation;
  5. Attribution of legal costs;
  6. Confidentiality agreements; and
  7. Changes to franchise agreements when a franchisee is trying to sell the business.

What Franchisors need to do

As a result of the proposed amendment franchisors must:

  1. Be prepared for random audits by the ACCC by ensuring they keep their records up to date and implement an appropriate compliance program;
  2. ensure that they can substantiate any claims they make in their advertising;
  3. amend their franchise agreements and disclosure documents to explain and disclose arrangements that apply at the end of the franchise term;
  4. maintain a reminder system to notify franchisees no later than six months before the end of the term as to whether the franchise agreement will be renewed.

The Federal Government will release draft legislation detailing the changes to the Franchising Code early in 2010.  We will keep you advised of the details of the changes once they are available.

For more information

Contact Peter McLaughlin +617 3223 6100 or email peterm@redchip.com.au.

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