News & Insights

From 15 April 2022, the maximum penalties payable for contraventions of the Franchising Code of Conduct (Code) will increase significantly.

Maximum pecuniary penalties for three specific breaches will increase to over $10 million, while civil penalties for other breaches will double from 300 penalty units ($66,600) to 600 penalty units ($133,200). Additionally, penalties will be applied to additional obligations under the Code which previously had no financial penalty.

The penalty increase will provide further incentive for businesses to review the Code and ensure they are compliant. Changes to penalties for breaches of the Code will apply to breaches that occur on or after 15 April 2022. Increased penalties for breaches of the Code formed part of other changes to the Code in September 2021. See here for our Insight about those changes.

summary of the new penalties

Individuals who breach the selected sections of Code (see below) will be liable for a maximum pecuniary penalty of $500,000.

Corporations that breach the selected sections of Code will be liable pecuniary penalties, being the greater of:

• $10 million dollars;
• 3 times the benefit derived, either directly or indirectly, from the Code breach. This benefit can be obtained either by the corporation itself or any other related corporation/s; or
• 10% of the ‘annual turnover’ of the corporation during the period of 12 months ending at the end of the month on which the breach occurred.

Civil penalty units for breaches of the Code can also be payable where the Code does not set out the above maximum penalties. As set out above, the maximum penalty units applicable to a range of breaches under the Code have increased from 300 penalty units ($66,600) to 600 penalty units ($133,200).

obligations under the code which attract these new penalties 

The following obligations under the Code attract a $10m (or higher) maximum penalty for corporations and individuals:

• breach of continuing disclosure obligations;
• breach of freedom to associate requirements; and
• breaches of requirements in relation to new vehicle dealership agreements relating to compensation on early termination, buy back of vehicles and return on investment.

Breaches to the following obligations under the Code attract a maximum penalty of 600 units:

• obligations of parties to act in good faith;
• disclosure obligations for franchisors prior to entering agreements;
• disclosure obligations for franchisors when entering into a franchise agreement;
• provision by franchisor of disclosure documents (on request);
• obligations of franchisor to notify franchisee of end of term arrangements and keep records;
• obligations in relation to termination of franchise agreements;
• obligation of franchisor to provide written notice prior to termination of a franchise agreement (where there has been no breach of the franchise agreement);
• obligations in relation to marketing funds;
• obligations in relation to disclosure of former franchisee’s details;
• alternative Dispute Resolution and arbitration obligations; and
• obligations of franchisor regarding notification of the end of a franchise agreement.

The following existing obligations now attract a maximum penalty of 600 units:

• franchisors cannot limit good faith obligations;
• franchisors must provide an information statement to prospective franchisees;
• financial statements for marketing funds are to be provided to the franchisee;
• franchisors must not enter into a franchise agreement which requires the cost of settling disputes be paid by the franchisee;
• franchisors must not unreasonably withhold consent to transfer a franchise agreement;
• a franchisor must not terminate their agreement if the franchisee has remedied their breach of the agreement;
• 7 days’ notice is required for termination of a franchise agreement; and
• a franchisee is not required to undertake significant capital expenditure in relation to the franchise business.

what it means for you

While these increases to penalties for the Franchising Code breaches do not impose further burdens on businesses that comply with the Code, it highlights the significance of breaches to the Code and acts as a deterrence to non-compliance.

For more information on these changes, or any other updates for franchisors, please do not hesitate to contact our Franchising team.