News & Insights

The Australian Government has announced its support of all 23 recommendations made in the recent “2023 Review of the Franchising Code of Conduct”. Further to these recommendations, the Government has committed to review in consultation with the franchise sector moving to a licensing system for the protection of franchisees.

As a result of the acceptance of these recommendations, a draft new, remade Franchising Code will be released later this year and will be implemented from 1 April 2025.

Accepted recommendations

The recommendations that have been accepted include;

1. Provision of more comprehensive, robust statistics about the franchising sector;
2. Remake the Code, largely in its current format;
3. Insert a clear statement of purpose into the Code;
4. The Code to capture service and repair work conducted by motor vehicle dealerships;
5. Review the Code in 5 year cycles in the future;
6. Simplify and consolidate pre-entry information given to prospective franchisees;
7. Simplify franchisor obligations under the Code in relation to existing franchisees;
8. Extend the existing requirement that new vehicle dealership agreements must provide a reasonable opportunity to make a return on investment to all franchise agreements;
9. Extend the existing requirement that new vehicle dealership agreements must include provisions for compensation for franchisees in the event of early termination to all franchise agreements;
10. Enhance the public visibility and usage of the Franchise Disclosure Register;
11. Include additional information on the Franchise Disclosure Register relating to dispute resolution and adverse actions brought by enforcement agencies;
12. Encourage franchise systems, through education, to consult franchisees regarding any major change to the business model during the term of the franchise agreement;
13. Simplify provisions relating to termination for serious breaches;
14. Provide best practice guidance to franchisees and franchisors regarding franchisee-initiated exit;
15. Do further work to limit the use of unreasonable restraints of trade in franchise agreements;
16. Create an online government resource (eg. FranchiseSmart website);
17. Work with relevant sector participants to improve standards of conduct in franchising by developing best practice guidance and education;
18. Give additional powers to Australian Small Business and Family Enterprise Ombudsman to name franchisors who have not participated meaningfully in alternative dispute resolution;
19. Assist franchisees to access low-cost legal advice on prospects prior to formal alternative dispute resolution;
20. Consider an appropriate role for franchise interests when implementing its commitment to a designated complaints function for the ACCC;
21. Allow franchisees to seek a ‘no adverse costs’ order when bringing a matter against a franchisor for breach of the Code or the Australian Consumer Law;
22. Increase the scope of penalties under the Code and associated investigation powers and infringement notice regime; and
23. Investigate the feasibility of introducing a licensing regime to better regulate most aspects of the franchisee-franchisor relationship.

What this means for franchisors?

Franchisors should be prepared for major updates to their franchising documentation in 2025, with some initial changes potentially required in the July-October 2024 updates.

We will need to see the detail, but the changes might be required to be done prior to 1 April 2025, after the release of the new Franchising Code, or they may be stated to apply with the usual July-Oct update window.

The adoption of these recommendations has the potential to lead to major improvements in franchisor-franchisee relationships.  They will however, increase the operational and administrative burden on all franchisors.

How can MK help?

If you require any further advice around the potential changes to the Franchising Code, please contact one of our experts.

Otherwise, stay tuned for further updates as more details on the Code become known.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.