Inquiry into the Franchising Code of Conduct’s operation and effectiveness

The franchising sector has experienced a fiery media spotlight in recent times, thanks to numerous franchise businesses (Pizza Hut, Dominos, Seven-11 and many more) involved in unsavoury practices such as systemic underpayments, breaches of the Code and business models that have made it difficult for franchisees to stay afloat.

Despite the overhaul of the Franchising Code of Conduct just three years ago, the Code itself has been under further scrutiny this year.

In March, an inquiry was called into the operation and effectiveness of the Franchising Code of Conduct. Headed by the Parliamentary Joint Committee on Corporations and Financial Services, the Inquiry follows a previous review of the Franchising Code in 2013.

As part of the process, the Committee received 216 submissions and conducted seven public hearings to identify potential reforms to the current Code of Conduct. Initially, the report deadline was 30 September but this has since been extended to 6 December, 2018.

What could this inquiry mean for the franchising sector?

At this stage, we still don’t know but it’s fair to say there are likely to be changes made to the current Franchising Code of Conduct.

Areas being scrutinised as part of the inquiry include:

  • Whether potential franchisees receive full disclosure of the information they need to make an informed decision about entering into the franchise agreement (likely financial performance, leasing, running costs, termination rights, etc);
  • effectiveness of dispute resolution under the Franchising Code;
  • impact of unfair contract provisions under Australian Consumer Law on franchise agreements entered into since 12 November, 2016 (new, renewed and terminated);
  • whether provisions of other compulsory industry codes benefit or hinder franchising relationships in comparison with terms of the Franchising Code;
  • whether termination provisions are adequate and how they operate
  • restraints of trade on former franchisees when a franchise agreement has ended;
  • how breaches of the Franchising Code and other applicable laws are enforced; and
  • related matters.

Best practice franchising requires franchisors to stay ahead of the game and regardless of the outcome, it is prudent for franchisor’s to review their franchising agreements and obligations regularly and consistently, bearing in mind that these agreements should be clear, fair and enforceable.

If you have any specific questions on the potential impact to your franchise or would like your franchising agreement reviewed, please contact Racha Abboud.