FCA and ASBFEO welcome latest franchise reforms

By Sarah Stowe | 02 Jun 2021 View comments

The Franchise Council of Australia and the Australian Small Business and Family Enterprise Ombudsman have welcomed the Franchising Code of Conduct reforms announced by the Federal Government.

The Code amendments come into effect from 1 July 2021.

Earlier this year the government released proposed reforms, including a franchise disclosure registry, following a parliamentary inquiry into the effectiveness of the Code with findings released in 2019.

Now the new rules are laid out with the aim of giving franchisees a more balanced role in the franchise agreement.

Amendments to the Code improve pre-entry disclosure with a new mandatory key facts sheet and an improved scope of financial disclosure, including information on goodwill and supplier rebates.

Franchisees are able to request the early termination of their franchise agreement.

The Code amendments also allow for improved dispute resolution processes with ASBFEO and include a specific multi-franchisee process.

Other revisions:

  • extend cooling off periods to 14 calendar days for greenfield and existing franchise purchases
  • prohibit unilateral retro agreement changes unless written consent is given
  • require disclosure around leasing and any franchisor conflict of interest
  • limit restraints of trade restrictions to a serious breach of an agreement

Marketing fund revisions aim to ensure consistency in language and to impose civil penalties if franchisors have a marketing fund but fail to comply with reporting obligations.

Other amendments prevent a franchisor from contractually passing on to a franchisee future indeterminate legal costs relating to the franchise agreement.

New provisions also bring automotive dealers in to the Code.

Mary Aldred, CEO of the Franchise Council, said she is reassured by the Federal Government’s approach to the changes.

“The past 18 months has proved to be the most difficult economic environment Australian businesses have ever experienced. The FCA was wary of further business failures that may arise where there are rapid or overly punitive regulatory obligations,” she said.

The FCA has “consulted extensively with franchisor and franchisee members as part of the industry consultation process,” she said.

“We appreciate that the government appears to have taken into account the significant reforms already introduced by the FCA in response to the issues raised through the 2018 parliamentary inquiry into the franchise code of conduct and subsequent taskforce.”

Australian Small Business and Family Enterprise Ombudsman Bruce Billson said the significant reforms will help level the playing field across the franchising sector.

Increased powers for the office of the ASBFEO will help resolve disputes in a cost-effective and timely manner, he said.

“This supports a no-surprises, collaborative and mutually respectful commercial relationship between franchisees and franchisors.

“Allowing my office to facilitate group mediation when several franchisees are in a similar dispute with the same franchisor, is another critical reform that will help restore confidence in this sector.”

Billson said the Code changes mean prospective and current franchisees will be better armed with the information necessary to run their business.

“This includes more transparency around the marketing fund, with an annual financial statement which sets out meaningful information regarding expenditure. Greater visibility around rebates and leasing arrangements will be achieved by these reforms.

“The new mandatory Franchise Disclosure Registry, which is scheduled for release in early 2022, is key to providing prospective franchisees with vital information needed prior to entering a binding franchise agreement.

“Over the past six months my office has fielded over 240 calls from franchisees seeking information regarding disputes under the Franchising Code of Conduct.

“This demonstrates just how critically important it is for prospective franchisees to know exactly what they are getting into before signing on the dotted line.”

You can read the full Franchising Code amendments here.