Complying with the Franchising Code of Conduct
All franchise businesses, including franchisors and franchisees, are required by law to comply with the mandatory industry code, Franchising Code of Conduct (the Franchising Code).
The purpose of the Franchising Code
The Franchising Code:
- regulates the actions of franchisors and franchisees
- aims to make sure that prospective franchisees are properly informed about a franchise agreement before entering into it
- provides a cost-effective dispute resolution scheme for franchisees and franchisors.
While the Franchising Code determines minimum standards of disclosure and conduct, it's not intended to replace independent legal, business or other advice before entering into a franchise agreement. Seek advice from a professional business adviser, accountant or solicitor before entering into a franchise agreement.
As a franchisee, the Franchising Code details:
- your rights and obligations
- the information franchisors must disclose to you
- the elements a franchise agreement must contain
- a mediation procedure for disputes.
Who enforces the Code?
The Australian Competition and Consumer Commission (ACCC) administers and enforces the Franchising Code as well as educates people of their rights and obligations. It also provides small business information for people buying a franchise, or extending or renewing a franchise agreement.
New Franchising Code of Conduct
On 1 January 2015, a new Franchising Code of Conduct came into effect. The differences between the old and the new Code are significant, so it's important to check your agreement and make sure you're still compliant in 2015.
The changes to the Code include:
- a requirement for franchisees and franchisors to act in good faith when dealing with each other
- new fines and penalties for serious breaches of the Code
- improved transparency of marketing and advertising budgets
- a requirement for franchisors to provide an information sheet to prospective franchisees that outlines the risks and rewards of franchising
- simplified disclosure requirements about selling online.
The new Franchising Code will apply to all franchise agreements entered into, renewed, extended or transferred on or after 1 October 1998 except for a small number of Code provisions.
What to do...
- Check out the ACCC's website for detailed information on the new Franchising Code of Conduct.
- Check out the Application of the Code section on the ACCC's website to find out how the new Franchising Code will apply to your business.
- Review our Franchising business topic for more information on buying a franchise.
- Seek advice from a professional business adviser, accountant or solicitor before entering into a franchise agreement.